Buying a truck? You’re better off buying new

When buying a truck new ones have high residual value, which means lenders and brokers determine your asset as a lower risk.

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Many businesses in Australia rely on all kinds of trucks. They purchase or lease trucks for transportation of plant, of goods and of liquids (concrete, milk, fuel and so on.) However, many businesses may believe that buying a used truck to reduce initial costs is better than buying new.

Business trends show the opposite to be true. According to the Australian Bureau of Statistics in July 2016, Australian businesses are committed to $1.281 billion worth of finance for commercial vehicles. When it comes to leasing, Australian businesses have committed to $13 million in new heavy trucks and only $1 million in used trucks.

So why is buying a new truck more cost effective, despite the high asking price for so many new vehicles?

Why buying new can return on your investment

Buying or leasing a new truck can cost you less over time. An initial investment in a truck for business purposes should give you a return on that investment as it performs as an asset. That means driving the truck is part of how your business makes money. New trucks have better safety features, better fuel economy, are aerodynamic and have many other features older trucks simply do not have.

Reduce maintenance, repairs and time off the road

Buying new helps you avoid spending too much of your time off the road. Newer trucks are at the start of their lifecycle and do not require constant maintenance or mechanical repairs. Older trucks may end up costing you more to maintain or keep roadworthy. Repairs may prove even more costly as manufacturers phase out older parts to make way for newer models. This all just adds to your bill and to your overheads. When your truck must stay off the road, it only compounds your financial headaches.

How business finance products are cashflow neutral

New trucks have high residual value, which means lenders and brokers determine your asset as a lower risk. Financiers “reward” low-risk purchases with lower interest rates. The most common business finance products available to truck purchasers are chattel mortgages and hire purchases.

Both works in similar ways – your lender places a mortgage on the truck until you have paid it off – though one is recorded as an asset on the balance sheet while the other is “hired out” to the business by your lender.

Both give you the flexibility to borrow more than the total value of your truck to finance insurance, permits, training or other residuals. Business can also tailor repayments around seasonal work, opt for balloon payments (residual value payments, a lump sum due at the end of the term) and variable loan terms. All business finance products also allow you to claim back GST, depreciation, interest and the fuel input tax credit as deductions.

Bill Tsouvalas, Savvy Truck Loans