Things to Consider in a Lease/Purchase

I am re-posting a recent article about lease/purchase agreements. This article brings up some valid points to take into consideration and is for information and discussion purposes, so please no rude comments. I do realize that this is a very diverse industry with varied experiences on lease agreements. If you join the conversation please tell us about your experience as a L/O and what company you were with.....or if you are considering a lease agreement tell us with whom and why you feel it is a good business decision for you. Let's share our experience and learn from one another in a civil way.


Lease-purchase: Sounds like a good deal, right?
Posted by Sandi Soendker
Editor’s note: At the request of a number of OOIDA members, we are re-publishing this blog from the Business Services Department on lease-purchase contracts.

There continues to be an alarming increase in people signing on to lease-purchase programs with large motor carriers. Our experience in reviewing these contracts and receiving numerous complaints over the years tells us these programs almost never benefit anyone except the motor carriers and should be avoided.

Admittedly, at first glance a lease-purchase agreement can seem attractive with no credit check, no down payment and the truck payment generated from load pay.

Sounds like a good deal, right?

Well, what may not be clear if you fail to read the fine print is that if you sign one of these, you will have no ownership rights until the truck is paid off. One real big catch is that the truck must remain leased with the company that “owns” it – meaning the motor carrier. You are basically tied to that company and unable to drive the truck wherever you want. Also, truck payments are usually deducted weekly instead of monthly. The truck payment is taken out before you receive your paycheck even if it means you receive anegative check.

That’s just a start.

• Typical complaints we receive include:
• Truck needs constant repairs
• Never receive a paycheck
• Miles have been cut
• No paycheck and getting further behind with the company
• Can’t generate enough money while the company refuses to let you move the truck
• Returned the truck to go back to working as a company driver, but the carrier is still charging payments on the truck
• Company requires a separate maintenance (escrow) account, but you never get to use it when the truck needs repairs. There may be other escrow accounts, too

Over the years, we have dealt with carriers that leased out trucks on which they did not hold titles. Some carriers that filed bankruptcy or simply closed their doors would often leave the equipment unsecured or paid for which meant the lessee lost the truck and all the money already paid toward it.

In one case, we dealt with a company that charged unbelievable repairs on equipment they took back after a default, but never made the repairs, plus, the repair bills were generated from their company shop. This same company would continue to charge lease payments to the original lessee on equipment they had already leased to another driver from whom they were collecting new payments as well. When the original drivers refused to pay and demanded the maintenance and escrow money back, they were provided with bills showing outstanding balances owed to the company. This company even went a step further by turning in these outstanding debts over to a collection agency. Still to this day the drivers that entered this particular lease purchase program through this company are fighting the effects of a bad credit score.

Probably the best way to avoid being ripped off in a lease purchase situation is to not enter into one, but if you still think you can be one of the rare success stories, here are some things you should check before you sign the dotted line.

1. Run the numbers. In most cases, if you are lucky enough to complete the lease you may owe more for the equipment than it is worth.
2. Ask about the title. Does the company have clear title or is the equipment financed?
3. Is the finance company aware the equipment is being leased?
4. What assurances can they give you that when you make your payments, they will make theirs?
5. How many lessees has the equipment had? (This is a big one, if other drivers were in a lease on this equipment what happened to them?)
6. Check the mileage. Does it make sense for the year of the truck?
7. Ask for maintenance records.
8. Ask about freight availability. You can also check into the availability by talking to drivers before you have your meeting with the company.
9. Beware of companies that have a company driver fleet as well as lease purchase fleet. The company pays the expenses on company trucks so those trucks will be dispatched first and for the best loads.
10. What items are going to be charged back to you besides the truck payment? You need the cost breakdown, not just the list of items. Then, run the numbers again. Determine how much revenue you will need to generate each week to keep your head above water, then balance that out with the number of miles you will realistically be dispatched.
11. Review the contract completely, understanding each and every condition specified in it. Watch for additional charges that will be assessed for excessive mileage or clauses that allow the company to take the equipment back should you default. Be sure to understand the conditions that warrant a default.
12. Many agreements state you are in default if you fall behind on even just one payment. This is important because the company controls the amount of revenue you generate.

When considering a lease-purchase program, remember until the final payment is made, you are paying the bills, expenses, insurance, maintenance, repairs and taxes on equipment owned and controlled by someone else. At any time during your agreement you could lose the equipment and your investment.

Are you really ready to sign up for that? Keep in mind, if there was so much money to be made by owning a truck, why would the company be trying so hard to sell you theirs?

 

I think the first of many reasons that we never considered a lease was a lack of access to the contract before you signed the agreement. I am cautious by nature when it comes to a third party being placed in control of our family finances.. To me, the fact that you were not permitted to have an accountant or an attorney look over the contract beforehand was a major red flag with TransAm. If they truly believe that this is profitable to both the company and the driver then they should be more than willing to allow an independent attorney to look it over.
Do other companies give you a copy of the lease agreement ahead of time?

 

You were lucky in that you were able to go home and look things over, scottied67. Most of the time the driver is there for orientation, has a long bus ride home at his own expense and basically is new to the industry. I feel that when you are signing a legal contract you should have access to legal advice.,,,,yet, they purposely deny a driver that choice. What company were you with?

 

It was an old article re-printed at the request of members .....and it is right on the money.

 

That's great! Would you tell us about it? What do you think has made a difference in your opinion? The company? Good dispatch? Detention pay? Were you an experienced driver before you went to lease? Anything that you feel is important to consider when you are looking at a lease would be helpful to those considering one. There are a lot of bad lease contracts out there and a few good ones. If we help new drivers to know what to look out for and avoid in a lease, and what to look for and seek in a good lease maybe we can change things in the industry.......If the ones that fleece and scam drivers can no longer fill the driver's seat maybe they will change their ways.