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Advantages of Financing Over Paying Cash For Your Next Truck

Your business is growing, and because of that, you need to add another medium duty truck to your fleet. While your capital reserves are adequate to cover the cost, you must take a moment to consider whether it's the best use of your funds. In many cases, financing actually offers more benefits over a cash purchase. In fact, there are three ways your company will save money at the time of the purchase, and in the first tax year.

Lower Initial Investment

While traditional financing options will require a significant down payment on a medium truck loan, it's a fraction of the actual price. The monthly payments will be higher than a lease option, however, they will decrease over a short period of time, and you will end up debt free. So, you have to ask yourself what's most important to your company's success right at the moment. Are you solvent enough to outlay a large amount of capital without negatively impacting your operations now, and in the future? Would it make more sense to finance a truck and pay for it slowly over time and invest the remaining capital back into your company?

Tax Advantages

Companies that choose to finance their medium duty truck purchases may also be able to take advantage of some tax breaks. For example, Section 179 of the IRS tax code gives a special allowance so that businesses can deduct the full purchase price of qualifying equipment financed during the tax year. That means that you can deduct the full price of the equipment from your gross income even if you haven't paid for it in full. It is also possible to take a bonus depreciation award, which is above and beyond the normal deduction amounts. This is generally taken immediately so the tax benefits are realized in the first year the truck is put into service.

Building Equity

Financing can put some borrows into an upside down situation, if they aren't careful. The trickiest part of the equation is the amount of the down payment applied to the purchase price. In many cases, companies opt for a lower figure, which means more of the purchase price must be financed, thus a longer payoff period and a higher monthly payment. However, those that are able to put a sizable down payment on a medium duty truck, pay lower payments and actually end up building equity over time. This can be advantageous, however, it's imperative that companies thoroughly evaluate the benefits of specific amounts as the down payment.

The reality is, there is no one-size-fits-all answer to the question of which option is better, buying with cash or financing. However, there are some distinct advantageous to financing. You'll keep more capital available, realize some significant tax benefits and build equity. Before you make the decision one way or the other, take the time to investigate the financial implications of each scenario and discuss your options with a financial, or business, adviser.