Lease-Purchase? Do the math.

Too many newer drivers aren't reading the fine print. Yeah, that LP deal looks great...until you do the math.

(Entire blog post reprinted here.)

I may have saved a financial life today.

I was over at the TA taking a lunch break when I overheard a young man singing the praises of being an "Owner Operator." Our conversation follows.

(Me)You're an owner-op?

(Greenhorn)I'm gonna be. I'm going on the lease-purchase program.

Who you driving for?

Crimson Flash.*

I ran with them for a while. Thought about the L-P deal, but I took a good look at it and I wouldn't touch it with a ten-foot pole.

What? Why? It's a good deal!

Really? Do you have their paperwork with you?

Yeah...it's out in the truck.

Kid, I'm not your daddy, and I don't sign your paychecks, so I can't tell you what to do. But if you'll take a bit of advice from someone who's been doing this a while, I can show you exactly how you're gonna get screwed. Go grab that L-P package and I'll show you what I mean.

(The young man went to get the paperwork. I found a Truck Paper and set my cell phone to "calculator.")

OK. Let's see that paperwork. Yep, just like it was a couple of years ago. Let me guess--you want a Pete, right?

Yeah.

They want $500 a week in payments for three years?

Yeah, that's not too bad, right?

Look here. (I show him the ad in the Truck Paper.) They want $45K for these trucks if you buy them outright. Let's see what three years of those payments adds up to. $500, times 52 weeks, times 3 years...that's $78,000.

Huh? That doesn't seem right.

Remember, three years isn't twelve four-week months. The only month with four weeks in it is February. All the others have a bunch of days tacked on, making a year thirteen four-week months, not twelve. See?

Hmm...OK, you're right.

Now, if you went to an independent finance company and took out a loan for that money, even with a horrible interest rate, you're paying around $60K at most. They're getting $18K more than even the most lowlife financier would take you for.

Whoa...

Don't pull your pants up yet, son, they ain't done boning you. You'll also need to put away $100 a week over and above your payment. See the fine print here? There's a $15,000 balloon payment at the end of that lease, due right now. And if you don't have it, they take the truck away. Now, $78,000 plus $15,000 equals what?

Ninety-three thousand...!

Yep. Ninety-three thousand dollars. Over double what you'd pay for that truck outright.

F*%#!!

Now, let's assume they let you finish the lease...

What do you mean, 'let me finish' it?

One common scam in this industry is to run you hard, let you keep making those payments, but not hard enough to be able to save much. And then, a couple of months before the end of the lease..."there's no freight, there's no freight." They make it impossible for you to keep making the final few payments, and they jack your truck and pull the same thing on some other sucker. They can sell that same truck two or three times, basically.

####!

This is why the people who control your freight should never be the people you make payments to. But let's say they're honest in that regard. Bear in mind, they pay typical ripoff HHG miles, so you'll have 10-15% more miles on the clock than you get paid for. And you'll have to run hard to make your payments, expenses and be able to eat. Not to mention, that truck will already have 3-400K miles on it when you get it. You've run hard, watched your expenses, stayed out of the chrome shop, the CB shop, the casino and all that. You put aside the money for the balloon payment, and three years from now, you have the title to...what?

You've just spent ninety-three thousand dollars on a bare-bones, snub-nose fleet Pete. With a castrated motor, a castrated transmission, and anywhere from eight to nine hundred thousand miles on it. It's junk. You'll be lucky to get scrap metal value on a trade.

Hell, if you want to spend that kind of money, go to a dealer and spec out the truck you want. If you can keep from going crazy with chrome and chicken lights, it'll be in the same general price range. Plus, you can make 5 years of much lower payments and still have a decent truck at the end. You can either trade it in and get a good price, or keep it and save that truck payment money for the eventual repairs and rebuilds.

Otherwise, I'd recommend finding a bank or finance company, getting a loan, and buying the truck straight out. Even though you won't have the title for a while, you'll be able to take 'your' truck and move on if Crimson Flash starts playing games with you. They know that, and they'll be forced to treat you with a bit more respect.

I gotta roll. Like I said, I can't tell you what to do...but I hope I at least made you think.

I left him sitting there a bit dumbfounded. I hope like hell he listened.


*Crimson Flash is a totally made-up company. In fact, I made this whole post up, nothing like this ever happened, and neither you or your army of lawyers can prove otherwise. Bite me.

 

True. But we all have to do our part to help these folks--dumb as they are--see the error of their ways. If we can dry up the pool of suckers, these companies will start hurting.

 

If you want to gamble, and have an eye for what the economy's doing, you might be able to work this in your favor. With all the repos and sales, you may be able to snag a good deal on a decent truck just before the tide turns and the freight level rises.