Fire Truck Financing: You're not as smart as you think you are

It's a very common problem. A lot of departments I talk to have tunnel vision and that can cost a lot of money. Let me give you one such example.

Some background
I spoke with a large fire department that wanted to buy about 30 trucks now to avoid regulatory changes instead of buying 10 trucks per year over the next 3 years. This department had it in their head that they needed a 3 year loan and they focused on the the timing of the first payment so it would fit into their budget.

Here's where their focus almost doubled their borrowing cost
The department could easily arrange their payments according to their requirement and there were plenty of lenders who would take the order. The trucks would have delivered in about 1 year. The department would have paid almost $700,000 in interest to borrow the money for 3 years.

The idea that saved them over $350,000
I suggested that the department wait to finance their trucks. Use the first year's payment to buy 10 trucks and finance the other 20 trucks over 2 years. Of course, the department is bearing some risk that interest rates may rise in the next year but an analysis shows that rates would have to more than double to cost more money.

In summary
Don't focus so much on what you think you need that you miss listening to some big picture ideas. In this case, the department's focus on the timing of their first payment blinded them to some larger ideas that would have halved their borrowing costs. Build a constructive discussion with your banker and let them use their experience to help you.


Stay safe!

John R. Hill
Apparatus Budgeting Consultant
ENVIZION Financial
www.envizionfire.com