Purchasing a truck can be expensive. Even if you have some cash earmarked for big purchases, it might not be sufficient to make the payment upfront. It does not mean that those cash reserves are scanty, but it means you might have to allocate those funds for other business expenses. Well, a good thing is that you can finance your truck, which can be financed the same way a car is financed.

Truck finance allows you to buy trucks and trailers either using a lease or loan. Whichever option you choose; you are supposed to pay the money over a period of time. Even though you can buy it upfront, it is advisable to finance your truck to ensure smooth cash flow. It makes it more manageable to pay for a truck when payments are spread out. You will also get tax benefits on interest payments and depreciation.

There are various types of trucks that you can finance, such as tanker trucks, tipper trucks, and refrigerated trucks. At the time of financing a truck, a lender will particularly pay heed to your requirements so that they can provide you with the best financing solution. For instance, if you have a fleet of trucks for your transportation business, a lease will be better than owning it.

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Truck finance options

Here are the truck financing options:

Hire purchase

Hire purchase suits for those who want to own them. Unlike a lease agreement, the ownership will be transferred to you at the end of the final payment you make. It can benefit those who have a poor credit rating.

Although the payments will be spread out over a period of time, you will have to make the down payment, which is 20%. With a hire purchase agreement, your lender reserves the right to repossess the truck if you fail to keep up with payments.

Advantages:

Hire purchase will allow you to manage your working capital smoothly.
It is more tax-efficient than standard loans because payments are considered your expense.
Hire purchase is quite helpful when buying expensive machinery such as construction equipment. Start-ups can benefit from it without putting down collateral.
It will not affect the return on assets because the debt amount will not be too high.

Disadvantages:

Hire purchase carries very high interest rates whether you use it for pickup truck finance or trailer finance.
You may lose some capital if the truck is repossessed.
Depending on the value of the truck, some vendors may ask you to secure it against any other assets of your business. The secured asset is also at risk if you fail to make payments.

Lease purchase

A lease is an ideal option for those who do not want to own the truck at the end of the period. There are several companies that need trucks for a short period of time. Hire purchases will be way too expensive if you need a truck for a very short period of time. A lease is a rent agreement between two parties. Both parties will be responsible for abiding by the terms and conditions of the contract. If they do not, they both will have to suffer from the consequences.

Advantages:

The lease will help you with better cash flow even if you are a start-up because payments are small. They are smaller than the hire purchase.
It is ideal for customers who do not pay VAT.
The truck will be returned as the contract comes to an end if you do not intend to buy it.
Since you are to pay rent every month, these expenses are subject to taxable profits.

Disadvantages:

There will be a mileage restriction. You will have to pay more if you breach that condition.
You do not have ownership. If you want to own the truck, you will have to make a balloon payment.
There will be early termination fees if you want to terminate the contract early.
At the end of the contract, you will have to pay a proportion of what the dealer pays to clean and sell the car.

Business loans

Transport and logistics business loans in the UK may seem to be a better option if you are looking to buy a truck. Getting these approved is not a cinch because you need a good credit rating and a strong repaying capacity. These loans are typically ideal only when you are an established business. Your chances of getting the nod for these loans are very bleak if you are a start-up.

Advantages:

Business loans will spread the payments over time, so your cash flow will not be disrupted.
The size of the down payment will be smaller than the hire purchase.
You are eligible to apply for these loans even if your credit rating is poor.

Drawbacks:

A poor credit rating will make it harder for you to qualify for lower interest rates.
You might be restricted from borrowing a larger sum because of your credit rating and revenues.
The size of monthly instalments will be bigger than the hire purchase because of a lower down payment.

Finance lease

A finance lease is a rent agreement between the lesser and the lessee in which you promise to pay a fixed amount of money every month in exchange for using a truck. This is slightly different from a lease purchase. You will have to return the truck when the contract expires. However, with a lease purchase, you have the option of buying the truck at the end of the contract.

Advantages:

You will have a fixed budget for every month so you can manage your cash flow effectively.
You do not have to worry about the maintenance because you are to return it to the lesser at the end of the contract.
Monthly rent payments can be offset against the tax.
Administration costs will be quite low.

Disadvantages:

You cannot own the truck because it will be returned to the lesser as the contract ends. In fact, there will be no clause of purchase in the contract.
Operating risks are too high.
Interest rates vary by lease provider. Make sure to do research to get the most affordable lease.
You should have comprehensive vehicle insurance.

The bottom line

There are various types of truck financing. You should choose the one that suits your requirements. If you cannot decide, you should take the help of an expert. Talk to brokers. They might help you choose the best financing option.