If you are on the hotshotting business, this type of situation may be familiar to you.
You are excited to start hotshotting, and you buy a pickup truck. You got the vehicle. Now comes the bills — the loan payments.
You tell yourself, “I will work double time in my hotshot business so I can cover my costs and my loans.” You do good, but still, expenses are winning over your income. You keep going and going, yet you are getting the same results: more money goes out than stays…
Until the day you find yourself upside down with your loans and expenses. No matter how hard you try, your money seems to get sucked lower and lower down the expenses drain.
You tried to put in more hours. You also tried borrowing money from friends and companies. You’ve also tried financing schemes to help you with your loan. But the situation stayed the same or even got worse.
So, you finally decided to fold up and exit the hotshotting game. To cover your loans, you have agreed to sell or trade your vehicle. But your pickup truck has too many miles. No one wants to get it since it had run too many miles.
Then the harsh reality sets in: You realize you’re stuck, with no way out.
You may find this horror story of a scenario absurd. Or you may know somebody who has gone through the same experience. But like all businesses — hotshot trucking included — there are risks involved. Sometimes it works out; sometimes it doesn’t.
But then you say, “But I really want to try hotshotting. I have done my research. I still want to go through with it.”
The most significant chunk of most hotshot truckers’ expenses goes out to their loans. But what if you want to avoid these costly loans? If that’s the case, how about considering leasing a pickup truck instead of buying one?
By signing a lease, you avoid big monthly loans and a truck having too many miles. It also gives you a way to exit the hotshotting business if it doesn’t work out for you.
What Is Leasing?
Leasing is the simplest way to get a new vehicle every few years. It also lets the dealer or leasing company worry about disposing of the old one.
Leasing is like renting. You pay for the use of a truck that is not yours. When the lease is up — usually in three to five years — you return it to the leasing company. You do not own the truck.
There are two categories of vehicle leases: closed-end and open-end.
Closed-end is a type of contract that allows you to walk away from the vehicle at the lease term’s completion. You may have to pay an amount for extra miles or excessive wear and tear.
An open-end lease (equity lease) means one can buy the vehicle for a fixed amount by the time the lease period ends. This kind of contract is used by businesses or individuals who drive a lot.
Most consumers can attest that the closed-end lease is the best option. This lease type poses less risk upon the end of the lease term. This is also the type of lease that we will be discussing in today’s article.
Here Come the Payments
Know Your Lease Term
Before entering into a lease, a smart lessee should know how long the lease term will be. In plain words, the leasing term is the period that you use the truck and make payments on it.
Financing/Leasing experts recommend going for leasing terms of 36 months or below. The 24 to 36 months leasing terms are the most common lease durations. Other leasing agents also can provide 12- or 60-month lease terms.
So before shelling out any payments, know the lease term.
Downpayment and Monthly Costs
After deciding on a lease term and choosing what type of hotshot truck to use, it is time to calculate the fees. In this stage, you will find out how much your downpayment and monthly costs will be. It will be greatly determined by other charges and the vehicle’s residual value.
The residual value states how much your hotshot truck will be worth by the end of your lease. The higher your residual value, the less you need to pay over the life of your agreement. The residual values are non-negotiable.
For a written picture, let’s say you lease a $50,000 pickup. And that the preferred hotshot truck’s residual value is at $30,000 at the end of a lease. So, you will pay $20,000 for the lease term. Experts say a good residual value for a truck is above 60% of the pickup’s worth.
Once you’ve determined the leasing term’s total fee, you can now estimate the monthly payments. But before paying the monthly charges, it’s time to pay the Cap Cost Reduction or downpayment.
This fee is paid upon signing the lease. The more money you put down, the lower your monthly payments will be. You can also apply for manufacturer rebates and incentives, not to mention a vehicle trade-in to your downpayment as well.
Apart from the downpayment, you might have to pay extra fees too. Such expenses include a security deposit. This fee is paid before the lease contract takes effect. Most of the time, security deposits are refundable.
There are other payments to be made. These would be processing fees, taxes, freight, discharge, licensing and registration, etc. Payment details vary depending on every lessor. It is best and wise to check the fine print on your leasing terms.
When Lease Term Ends
When the lease term ends, there are might be payments you have to make.
One of them is a fee for excess mileage.
Most, if not all, vehicle lease agreements have a limit of miles one is permitted to drive. But at the end of the leasing agreement, you might pay for every extra mile you’ve driven over the allotted limit.
So before these overage charges happen, check how many miles you expect to drive. Include these into the lease deal. Sure, it might cost you more in your lease agreement. But, declaring the mileage at the beginning of the lease would be a lot cheaper. It would save you tons of headaches in the future.
Another thing you have to pay is for damages to the hotshot vehicle.
Upon turning in the truck, the leasing company will expect that there will be some wear and tear on the vehicle. Even so, you must pay for excessive wear or damages that are found upon return.
To remedy and reduce the amount of damage your leased truck has to face, consider installing a bed liner. This step is most important, especially hot shot trucking is mostly hauling items. Sometimes the load or the trailer might damage or scratch the vehicle’s bed. Find a kind of bed liner that does no damage on installation.
Also, early termination is another payment to face if you want to end your lease early. If you do stop the contract too soon, you may have to pay a hefty amount. So before this happens, it’s best to get a leasing term that you can finish.
Is Leasing For You?
Still uncertain whether to buy or lease a truck for your hotshot business? If you are, here are some questions that can help decide whether to purchase or lease.
A lease might be the best option for you if you answer “yes” to most of these questions:
- Do you prefer to drive a new truck every two or three years?
- Do your financials prevent you from buying a new truck?
- Are you unable to make a large downpayment?
- Do you plan to put less than 12,000 to 15,000 miles on your hotshot vehicle in a year?
- Do you plan to use your truck in a way that does not cause a lot of undue wear and tear?
- Do you plan to use the vehicle for business purposes and can write-off your lease expenses? (Be sure to get good advice from a tax professional on this.)
If most or all of your answers are “yes” to these questions, then buying might be best for you.
- Do you plan to pay off the vehicle?
- Do you plan to keep the vehicle and avoid loan payments for a while?
- Don’t you mind paying for repairs after the warranty period has passed?
- Do you plan to put more than 15,000 miles a year on a vehicle?
- Do you have credit issues? (It may be simpler to buy a new vehicle than to lease.)
- Do you plan to trade your truck for another in less than two years?
- Do you plan on customizing your hotshot vehicle?
The Bottom Line
When leasing, it is best to get a hotshot truck with a low depreciation rate. Be wary of some dealers who may be devious enough to give you a dishonestly low residual value. Remember: the lower the residual value, the higher the lease payments. The reverse is also true.
Also, upon entering a lease deal, always keep an eye for any clauses and other “surprise” or hidden costs. See charges for “excess wear and tear” and clauses for more mileage.
May these tips help you when deciding on leasing a hotshot truck.
Have you tried leasing your truck? We’d love to know how it went in the comments below.