Bad question #4 - Do we have to make a down payment?There are a couple of reasons this is a bad question, one strategic and one financial.
Why this is a strategically bad questionA fire truck purchase is a major, major purchase. It is not one that usually sneaks up on your department. You've known for a few years (at least) that you needed to replace a truck due to larger repairs, out of stock parts, more down time, or just lack of modern safety or other features.
So, if you have not been saving up for the purchase, you are about to inject a large capital purchase into an unprepared situation. So, having no down payment because you haven't prepared is a strategic mistake.
Why this is a financially bad questionThe other reason departments don't want to make a down payment is that they want to keep a higher savings balance. And no department should drain their savings down to (even almost) nothing for a new truck. Good financial practice means having a sufficient financial reserve or rainy day fund, between 6 and 12 months of revenue.
But some departments want to keep the excess savings and finance more of the truck thinking they can earn more on the savings than pay in truck loan interest.
There is a fancy financial word for this, it's called arbitrage. Arbitrage is a highly risky financial strategy and can be disastrous if not handled right. Even smart people get burned by arbitraged investments.
SummaryA lack of down payment is a poor plan on a couple of different levels. Your department should strategically start to save as much as you can when the older truck is seen as being at the end of its useful life.
And you should use those funds to pay as much of the truck you can in cash (not borrowing) and avoid tricky financial schemes.
John R. Hill