Spec the Money

If you think a truck is expensive, check your last financing deal. Money ain’t cheap, especially if you need a lot of it to make your purchase or arrange a lease. A diligent shopper could spend as much time spec’ing the financing as he does spec’ing the truck, and in fact, that’s not a bad rule of thumb.

Most truck manufacturers can finance the trucks they sell, and it may seem convenient to arrange the financing through the dealer. It’s not always the case. If you’re willing to do some work, you may be able to save a lot of money in the long run. Here’s where to start:

Get the Details. In Writing. Call around to various equipment finance companies to get quotes. You may even be able to get the finance companies to bid against each other to get your business.

Let’s say your shopping around saves you a full point on your interest rate. A one-point difference on a $100,000 loan (say, from 10 per cent to nine per cent) over 60 months is $2,931.60. Do you know how many more miles you’d have to drive to earn that much money in after-tax dollars? On average, about 8,000.

Take these quotes to your accountant for an objective analysis. The best deal isn’t necessarily the one with the lowest interest rate or lowest monthly payment. The best deal is the one that costs you the least amount over the term while meeting your needs with respect to payment, term, pay out, trade cycle, etc.

If the person you’re dealing with is apprehensive about quoting on the interest rate, even on leases, be suspicious.

What’s that Charge? Look on the bill of sale, invoice, or finance/lease contract for administrative fees, processing fees, miscellaneous fees, filing fees, etc. You’re about to spend $100,000 or more on a truck. You have every right to ask for these fees to be reduced or eliminated.

The Perils of Living Upside-down. When the fair market value (FMV) or selling price is less than what you owe on the truck, you’re “upside-down.” Shorter amortization periods and smaller residuals reduce the likelihood that you’ll end up in this situation. It’s tempting to extend the term in order to reduce the monthly payments and improve cash flow.

However, building equity in your truck now will make future truck purchases less painful.

Insurance. Many owner-operators pay far too much for credit life and credit disability insurance on their finance contracts. Most of these insurance premiums are rolled into your financing and are prepaid to the insurance company; therefore, you pay additional interest on this insurance. In many cases, you’re better off paying monthly.

GST/HST. If you’re registered, you must charge GST/HST when you trade or sell your equipment. This GST/HST then needs to be remitted to the government. Be certain that all applicable taxes are spelled out in your finance/lease or bill of sale documents, and make sure you understand how these taxes are paid and remitted and/or accounted for.

Monthly Payment. It’s easy for a salesperson to lower your monthly payment by raising the residual at the end of the term or extending the length of the finance contract. A low monthly payment is not necessarily the only factor to consider, especially if you don’t pay down the loan fast enough to keep up with the “real world” value of the equipment.

Ultimately, the key to success is this: shop to get the best truck and price (quotes in writing), then shop for the best financing (interest rate, terms, monthly payment, etc.). If you’re leasing, remember to include all applicable taxes in your payment calculations. The idea is to get the best truck and the best financing for your needs.

Finally, don’t sign anything unless you understand it and are comfortable with it. Ask for time to have your accountant look at the deal and help answer your questions. If you feel you’re being pressured, just walk away.

A hasty decision can be a costly one.