You are ready to acquire a tractor, trailer, or an entire rig. It might be your first purchase or your tenth. Either way, you will most likely need financing.
Once you’ve made a decision on equipment and negotiated a price, you will need to look for financing. But first you must determine the down payment required, and if you are going to put additional money down to reduce the amount of the loan.
Once the loan amount is determined, you will need to know the interest rate and the amount of the monthly payment. Can you afford the monthly nut? The amount of the monthly payment can be altered by the interest rate and the amount of down payment along with the number of monthly payments. You then should check out other financing sources.
Some of the options to check out are as follows:
• Dealers — Typically the dealer you are buying the truck from will provide a financing package. You need to compare dealer financing rates with other financing sources.
• Banks — Some banks are business oriented and will lend on tractors and trailers. Other banks will not.
• Commercial lending institutions— Look for companies that cater to the trucking industry, and
• The Motor Carrier — If you are purchasing through a motor carrier, they will usually provide a truck purchase financing program.
All of the above are good sources for financing a truck. However, you need to shop around, ask questions, and determine the best interest rate available.
Remember, it is possible to negotiate an interest rate lower than what a particular institution tells you. It is also best to have a financial statement and a written business plan so that the lending institution can gain confidence in you as a business person.
Given the state of the current economy, it is difficult to obtain financing but not impossible.
Some of the most frequently asked questions are “Should I pay cash?” or “How much should I put down?” and “Can I afford the monthly loan payments?”
We do not recommend that you pay cash for your equipment since the money can be put to better use someplace else. We think that a minimum down payment is in your best interest, as the government will help you to pay the loan by allowing you to deduct the interest on your individual income tax return, thus resulting in a tax savings.
Have your tax advisor project the affordability of the equipment. Also, a comparison should be made between leasing versus purchasing, and always consider how often you want to replace the rig.
Some people get a home equity loan, or they borrow from their 401K or other retirement plan to help them with the down payment for the truck. We do not recommend either one because, in effect, a home equity loan is usually a 15-30 year loan, and you could be paying interest for that length of time even though you get rid of the equipment in 3-5 years.
If you need to get funds from your 401K or retirement plan, it’s preferable over a home equity loan, but still is not advisable. If you must use 401K or retirement funds, take it in the form of a loan requiring no more than a 5-year payback. Otherwise, the penalty for taking a distribution is usually too great to make it a worthwhile option.
We also feel that the money in a retirement plan which is invested tax free over the long haul can make you a lot more money than the cost of your getting money elsewhere.
This article has been presented by PBS Tax & Bookkeeping Service, a company which has been providing income tax and bookkeeping services to the trucking industry for over a quarter century. If you would like further information, please contact us at (800) 697-5153. Visit the website at www.pbstax.com.
Everyone’s financial situation is different. This article does not give and is not intended to give specific accounting and/or tax advice. Please consult with your own tax or accounting professional.
The Trucker staff can be reached for comment at firstname.lastname@example.org.
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