Wednesday, October 26, 2011

Fire Truck Turn-in & Trade-in leases - Myth #3

I've seen a resurgence in departments considering turn-in, trade-in, or walk-away leases. There are a lot of myths out there and we'll explore a few.

Myth #3 - They are simpler

These descriptions are often described very simply. You just use the truck for 5 or 7 year, make your payments, and then turn the truck in or walk away.

Can it really be so simple? Well, like most things, the devil is in the details. These contracts have other obligations beyond the standard lease purchase financing. They require your department to maintain the truck in a specific condition. They limit the miles and pump hours. Sometimes, they even require that your department exactly follows the maintenance program.

What happens if you miss something
You are responsible for excess mileage, excess wear and tear, and anything else to get the truck into salable condition. You are signing a contract limiting your use of the truck (or accept to be liable for extra charges if you don't meet the requirements).

A final note about simple. Turn-in and trade-in leases only mention the simplcity of how you use the truck in the upfront materials. However, in these type of contracts, your department is responsible for excess wear and tear or unacceptable condition of the vehicle upon turning in or trading in.

Since this information is not known upfront (you'll only find what you owe at the end of the term), it's difficult to include this very real cost in your analysis. This can be an additional and significant cost in the ownership and financing of your truck.

Manufacturers have tried to wrap a very sophisticated financial contract in simple terms. If you don't understand the terms or ask the right questions, you can fall prey to the myths of these types of financing.

P.S. These type of contracts are acceptable for some departments. It's critical to understand if they are acceptable for your department. This series of articles is not about stopping any of these transactions, merely educating departments how to use them wisely.

Stay safe!
John R. Hill
First Bankers

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