Questions about financing a Truck
 

I have an opportunity to drive for a new company. I must however purchase a truck so that I can become an owner operator. Since this is my first truck I am totally unaware of the process. Can someone please tell me the best way to go about financing a truck. My credit is good but not great. All advice is appreciated!

Re: Questions about financing a Truck
 

To cut to the bottom line, operating a truck is going to cost you .75 to .90 a mile including fuel, insurance, taxes, repairs, depreciation, etc. That is before paying yourself ANY MONEY.

If you can make the money you want knowing the truck will cost you that much per mile, try OOIDA. They arent the cheapest financing in the world, but they are completely honest and ethical. Many people in the truck financing business are something less than honest and ethical.

http://www.ooida.com/

Who are you going to lease on with?

Re: Questions about financing a Truck
 

yep.

Most lenders will want a credit score of at least 650 with some driving experience. You should be prepared to pay from 20-30% of the purchase price down. In addition you really need some operating capital. It is always best to have your own financing before you start shopping around. Most dealers can find financing for you, but any time you go through a dealer you will usually pay a higher interest rate since the dealer often gets a commission or kick back from the lender for any contracts that the dealer sends them. Your bank is your best source of financing. Most will not finance class 8 trucks because of the high failure rate. Lenders don't want to repo trucks. It would be good if you can get pre-qualified for a load. Once you do that you know how much money you can get and about what the payment will run. Paccar, Navistar, Mercedes Credit and GE are three of the larger lenders who finance class 8 trucks.

Before most lenders will finance a class 8 truck, especially for a new owner operator, they will usually want a copy of your lease agreement. You didn't mention the carrier or whether you will be paid mileage or percentage, but keep in mind that your actual operating costs will likely be more than $1/mile. You need to include driver pay in your calculations. Whether you hire a driver or do the driving yourself, you still need to calculate a cost for someone to drive the truck.

Thanks for all of the info thus far. I believe that I will get a percentage initially and then if it is over a certain amount of miles then mileage pay kicks in. I am presently hauling gasoline at the new company I will hauling hazardous material but not gasoline.

Everything what GMAN said, your local bank is the best way to go...

Paul Mcgraw said,
To cut to the bottom line, operating a truck is going to cost you .75 to .90 a mile including fuel, insurance, taxes, repairs, depreciation, etc. That is before paying yourself ANY MONEY

Question: Since I am looking at an 03 at about $50,000 and the depreciation will be less do I then add on a higher repair cost, which in effect leaves your numbers the same.

The easiest way to do the repair cost factor is to set aside a certain amount of money in a maintenance account. Some use from $0.08-0.15/mile. All repairs can be taken out of that account including oil changes and tires. If you prefer, you could pay the oil changes and tires out of operating expenses and continue to put money in the maintenance account until you get a substantial amount built up to take care of major repairs such as an engine overhaul. 8)

90cpm to operate a truck is one of the urban legends that keeps on going on on these boards day in and day out, people please be reasonable when posting number figures as alot of folks who are planning to make their bread in this buisiness read these statements and get their info from here....i understand the drive for higher rate but certain individuals make it sound that without at least 2$ per mile you are cut to loose everything which is not true, i dont have it and am doing quite well...we hear enough BS on the CB radio, lets make this place at least a little more informative.

90 cpm is very reasonable I have no idea why you`d think otherwise, it cost me about 69 cpm to run my truck and thats before driver pay (me) truck payment (dont have one) and maintenance account (I dont take anymore because I have well over 25k in my maintenance account)

One major mistake those just starting out make is under estimating costs and over estimating profit. There are a number of smaller expenses often over looked. While I don't think that one needs to make $2/mile to be profitable, unless you make a fair profit, you won't be able to stay in business very long. Whether you have payments or not, at some point your equipment will need to be replaced. Money should be set aside for that purpose. I don't put a load on my truck for less than a certain amount of money. There are those who will haul for much less than I will. They are like the guy I met several years ago who was hauling freight for $0.78/mile and thought he was making a killing. He didn't understand that he was going broke with every load. It has been a number of years since I have hauled for $1/mile. Fuel was about $0.80/gallon back then. From my perspective, unless I can make more money owning the truck than driving for someone, I don't see any reason to buy a truck. If you have a big truck payment your cost of operations will be higher than if you either have low or no payments. In both cases, money should still be set aside to replace your equipment or make major repairs. I have had 2 drivers work for me who lost their trucks when a major expense came along, because they failed to put money aside to take care of this type of expense. They were also running for rates that were too cheap. They made more money working for me than they did owning their own trucks.

So 90cpm (rate) - 69cpm(cost) = 21cpm to the driver/owner :shock:

Yes, the older the truck the higher repair expenses are likely to be. However, I suggested a range for a reason. Some people just get lucky and have a truck with few problems. Others get unlucky and get a truck with many hidden problems that don't show up till you have put 100,000 miles on the truck. Some people are great mechanics and can do all of their own work and thus save tons of money. Some people dont know the difference between a torx and a torque and have to pay for everything that needs doing. Repair expenses are therefor going to be the biggest variable, and basicly the older the truck the higher the expense.

Fuel at 6mpg at $2.40 per gallon is .40 per mile.
Tires at one set of steers every 100,000 miles and one set of drives every 200,000 miles is .02 per mile.
PM's at $220 every 15000 miles is .015 per miles
Insurance at $8600 per year for an independent driving 100,000 miles per year is .086 per mile.
Truck purchased two years old for $70,000 and sold traded in four years later for $25,000 equals depreciation of $11,250 per year or .113 per mile
Interest on the loan for the truck assuming $50,000 is financed at 9% interest is .027 per mile.
Fed 2290, Tag and Permits (varies by state of course( $2,400 per year or .024 per mile. We will assume you balance fuel purchases perfectly by state so no extra IFTA tax need be paid.
Repairs other than PM and tires $800 per month on average per ATA is .096 per mile. If you have a newer truck or can do many repairs yourself reduce this amount. If you have an older truck or never even put in a lightbulb yourself increase this amount.
Cell Phone, fax, document service, air cards, paper, postage, computer & computer software, accouting and tax service, etc. $250 per month or .025 per mile.

Summary
Fuel .40
Tires .02
PM's .015
Depreciation .113
Interest .027
Insurance .086
Vehicle tag and permits .024
Repairs .096
Phone, fax and other services .025
Total per mile .806 or round off to .81 per mile.

Notice we have not included anything for driver pay, social security, workers comp, medicare, income tax, or health insurance.

Adjust any of the above to reflect your actual situation if different. Please dont tell me this is not proper tax accounting. I have a background in economics. This is called management accounting acording to Financial Accounting Standards Board FASB rules which attempts as closely as possible to reflect real world cash events.

maybe some other owner but not me, I never said I ran for 90cpm only that it cost me 69cpm to run

At .90, you took the high side of the .75 -.90 range that was given earlier.

So, what do you estimate the expenses at?

To the original poster, I estimate truck maitenance at $10,000/year/truck. Some years it's less, but we just put a new cylinder head on a truck we bought two weeks ago. After the new head, Prestone went missing again so it's back in the shop to have the head off again. Twice in one week. I can't wait to see the bill for this.

Nice explanation, Paul McGraw.
So if I understand.
If you save from each payday, the tires,PM,Depreciation,and repairs
or approx. $.25 a mile then you will always be prepared not only for the fixing but also the replacement costs.

This is a nice insight to what really goes on owning your own truck. The best scenario is to own a truck out right. Interest will kill ya, and after awhile, you'll feel like you are working for everyone else but yourself. all the responsibility, risk and a small reward(some will disagree about the reward part). Unlike other businesses, your truck depreciates. So, question for O/O's, why do it?

Very few businesses get started without borrowing money from someone and they all have accounts payable. If the fact that you have interest expenses, maintenance expenses, depreciation, etc. makes you feel like you're working for everyone but yourself there's a simple explanation...you're working too cheap. Why do it? For the same reason that most businesses are started, to make a profit. Some will tell you it's about the freedom of working for yourself or being paid to be a tourist. That's all well and good but if they aren't making a profit they won't be enjoying those things very long. Not making a profit? Best find something else to do. I would.

You are correct about most people borrowing money to start their business. However, most have money of their own to put into their venture. Business owners must be careful, especially starting out, to not over spend or over commit on monthly expenditures. If one person has a $500 monthly truck payment and another has $2,000, their cost of operations could be significantly different. That is why when we discuss operating costs that there could be differences between several different owners. There really is a difference in operating costs. Another factor to consider is the type of truck. If one buys a 379 Peterbilt and another buys a 387 Peterbilt or other type of aerodynamic truck, there could be a 20% or more difference in fuel costs. The 379 may not get more than 5-5.5 mpg, while the 387 may get 7 mpg. Over the course of a year, the costs can be significant.

not too simple, if the high paying loads aren't there, then you take cheaper loads to make your truck payment. that's why it's better to own your truck. so, do most ppl have 30-40,000 (Tractor and trailer)lying around?

Thanks :) Yes, putting aside money for these items is really the best idea, as GMAN also pointed out. Of course, you might get unlucky and blow an engine two days after the warranty expires. Life happens. But if a person spends less than they make and saves up for contingencies, you will stand a better chance of succeeding, and you will preserve your sanity as well.

But nothing gurantees success, and I know that from personal experience. :!:

Interesting that ATA estimates $800 per month, which is $9,600 per year and you have experienced $10,000 per year which is virtually the same number. The two sort of confirm each other.

I wish more were done to spread the word among truckers considering becoming an O/O as to real world expenses they can expect. Just the opposite seems to happen. Trucking companies try to make drivers think they can run at .88 per mile and make BIG profits.

When a driver is used to making $0.30/mile and is all of a sudden is offered $0.88/mile he may not be thinking about what his expenses will run. He actually has no clue what it takes to run a truck. Some only look at fuel as their operating costs. When you look at truck payments and all the other expenses involved with operating a truck, there is no way anyone can make money at that rate. I think the problem is that most who get into these situations know nothing about business. They don't know how to break expenses down to see if something is profitable or not. It would be good if those who consider buying a truck had a course in business management specializing in running a truck or being an owner operator. These companies who offer these cheap rates don't really want people to know what it really costs to run a truck. If a driver brings in $2,000 or $3,000 per week, they think that is what they are making. That isn't the case. Just because you bring in a lot of money doesn't necessarily mean that you are profitable. But try and convince some of these people that and make them believe it.

That's a great post Gman, very true.
Do you guys think it's mostly the younger guys that get fooled by the money or do you see older guys as well not knowing how to run a business?

I know I learned a few lessons in business the hard way cause I started young and didn't know all the cost or all the paperwork involved.

It's funny cause you could take Gmans post and apply it to probably every business.

If I'm pricing a job for a homeowner (which is rare anymore I try to stay away from that) I tell them straight that I don't compete with unlicensed guys working out of their pick up. It's amazing how many guys work to cheap.

jnk, that's the whole point. If you're having to take cheap loads just to pay your bills then there's something wrong with your business plan. Either you're undercapitalized or you're not making enough profit. Of course rates are going to fluctuate but this has to be taken into consideration in your business plan. This means that during the busy season you'd better be hauling for rates that are good enough to make up for the slow season. If all an O/O is doing is making enough to pay his bills then, even if he's paying himself, he's actually hauling at a loss. In order to break even he also needs to be making enough to offset depreciation and unrealized maintenance expenses. So every load that just covers fuel, truck payment, insurance, driver pay, etc. still puts him further in the hole. Why wear your equipment out when it's not making you a return?

GMAN, I think we agree for the most part. However, even is somebody commits their own money it's still borrowing, just from yourself. A proper business plan takes that into consideration. I do agree that everyone's operating costs will differ, although I don't think that they differ to the degree that many people think. Someone that starts with a 3 year old truck is certainly going to have a lower payment than someone who buys new. But what will the difference in maintenance costs be? In addition, the person buying new will recoup some of that difference in terms of depreciation write-off. And third, all things being equal, the newer truck will always have a higher value. So while there appears to be a significant difference at the outset, there are several mitigating factors in actuality. And again, the business plan comes into play. If someone that pulls a dryvan spends as much on equipment as a heavy-hauler then that's poor business planning. The rates will never justify the expenditure.

This has got to be one of the best threads I've read in a while. I've been thinking alot about becoming an O/O since I came back to trucking 3 years ago. I honestly believe that it is the only way that I'll ever be happy doing this job(OTR that is, doing LTL right now, but not impressed with it). But it is really a slap in the face when I study GMAN, The Rev. , SteveBooths, and now Paul Mcgraw's posts and realize how much I don't know or understand about truley being an O/O.

I've been thinking about going back to knight for 2 or 3 years, giving up my apartment and paying off my car, which is the only debt I have left, and saving $40 to $60k to flat out buy a trk and trl, or pay off enough to really keep my payments down low.

Is there any literature specifically for a beginning O/O, or classes? I've checked the local colleges and schools, but I havn't found anything Truck related. Would OOIDA be a place to start looking? Thanks guys and gals for all of your wonderfully enlightening posts. I always learn something new ever day reading them.

Have a safe trip.

Chris

scythe08, OOIDA has a good cost calculator that I think is open to anyone, also the forums have some good info on them, I don't think as much as this one but still a good scource. I joined a while back, it's 45 bucks for a year. You'll need to join to access the forums. Read all the forums you can and sift through the BS, their is alot of information.
Here's some literature
http://www.truckersbookstore.com/index.htm
Here's a class, I believe I checked them out but it was some time ago, they seemed legit but check them out for yourself as well.
http://www.fbts.net/FREIGHT%20BROKER...%20DETAILS.htm
Good luck to ya!

No worries, unless you get into major expenses, there should be little difference in a new or older truck in basic maintenance costs providing the older truck has been properly maintained. Tires, oil changes, etc., will cost the same whether the truck is new or used. There are some maintenance issues that might need to be addressed such as king pins, etc., Replacement of king pins would cost less than 1 payment of a new truck. A newer truck may retain more value but a used truck will retain more of it's cost than a newer truck. For instance, a new truck which costs $120,000 may only be worth $50,000 in 3 years. A $20,000 truck may still be worth $12,000 in 3 years. Even if you had to replace the engine on the used truck, you will still have spent less and be able to get more out of your investment with the used truck than new.

And Chris, there really isn't much in the way of classroom training concerning becoming an owner operator. I have thought that would be a good subject for having a seminar. OOIDA has had a class for potential or current owner operators, near their offices in Missouri. I don't know anything about them, but you could contact them through their website www.ooida.com, or give them a call at 800-715-9369.

It takes between .75 and $1.00 pm to run a truck these days depending on how you run, whos driving, etc. If you dont know this either you dont know your bottom line or you havent been at this long enough to know you wont be at this for long. With fuel at $2.47/g and fleet avg fuel mlg at 5.6 mpg its costing .44/mile just in fuel. I know a lot of O/O's get way better than 5.6 but figure at this number which can be high if you hire a driver. Also you are going to pay your self or someone to drive for more than .32cpm, so .44 + .32 = .75cpm thats just fuel and driver pay! We do hear enough BS on the CB, if we dont know the difference. Com' on!

[quote="RostyC"]That's a great post Gman, very true.
Do you guys think it's mostly the younger guys that get fooled by the money or do you see older guys as well not knowing how to run a business?

quote]


RostyC, as people get older, they usually become more cautious. However, I don't think the younger drivers have a lock on being foolish. Part of being young is being impatient and wanting everything now. You think that you absolutely, positively must have what you want right NOW. While there are some older people who feel this way, it is probably more prevalent to younger people.

You don't learn how to run a business in school. You learn by watching, listening and doing. I was fortunate to have grown up in business. Both parents and their parents were in business. That is one of the best ways to learn how to operate a business. You see how others, whom you trust handle situations. I have also made a lot of mistakes along the way. That is a very difficult way to learn. You see, when you are young you already have all the answers. :P :roll:

I grew up in business too, my father was a door to door huxter. He sold eggs,fruit, vegtables, and some meat. I started going along in the summer when I was old enough to count money. We'd go to Baltimore and Washington and sell then pick up more product in the evening. Those were the best times of my life I think. You're right it does teach you alot.

That's very true, there's some things you can't simulate, like making tax payments ON TIME and the consequences of not doing it.(you can't simulate kickin your own ass) :lol: :lol:

I was a banker lending money to small to medium sized businesses for over 20 years. I knew a lot of millionaires. All were self-made. The ones who inherited money or inherited a business didn't keep it long.

Out of the hundreds of self-made millionaires I met only a very few went to college at all and even fewer graduated. Most told me they had big time trouble in school. Why? They always were determined to do things their own way and teachers don't like that!

What did all of these millionaires have in common? They were all very focused, ego-centric, very hard workers, and all were willing to take chances based on limited information. You never have perfect information in this world. When one of these guys made a bad decision, they cut their loss, reevaluated, and tried again. They didn't give up.

Luck plays a bigger role in business success than most people in the USA want to admit, including myself.

Paul, you just confirmed what I always believed. You don't need a college education to be successful. I'm not saying college isn't good it is but it's not a guarentee either.

My brother in law is a millionare many times over, never went to college. His son can't seem to make anything work, and he went to college. If it wasn't for is father he'd be nowhere.

Now even he (my brother in law)will admit there was some luck to his fortune. Right place right time.

Execellent post Paul.

I too want to thank Paul for his excellent posts so far,he has added more insight to this board in 15 post than some have in 1,000's not mentioning any names :shock:

Good post, Paul. I don't recall ever being asked about my degrees when I applied for a loan. All the lender wants to know is whether I can pay back the loan. From what I have seen in colleges in recent years, is the focus is more on group efforts, rather than personal achievement. Schools and colleges are taking a socialistic approach to education. Innovation rarely comes from a group. Some of our best inventions have come from the efforts or ideas of an individual. I have never liked the idea of being graded for what other do. I prefer to succeed or fail on my own efforts.

Well, you can thank the liberals for that and many other problems with our society today. :roll:

It is the average citizen who is ultimately to blame, FlyByNight. These politicians won't do anything that will put them out of a job. Until the citizens of this country find their backbone and decide that they are going to take care of themselves rather than have the government do it for them, things are not going to change. :x

This country is too spolied for that to happen, people here never had it hard and always had big government to deal with their problems, which on the other hand plays well with the big boys since they can do whatever they feel like it elsewhre as long as the average Joe is happy here, give them basic things, keep gas prices in line and they will, in return, keep their mouths shut.....exacly, things are not going to change.!!

Re: Questions about financing a Truck
 

Have an independent mechanic who has nothing at all to do with the truck sale or the seller, do a very major inspection of the truck for the purpose of advising you about buying it. Assume nothing about the truck previous to this. You cannot find out too much about the truck. Have the engine dynoed and receive as much advise as you can from mechanics regarding any prospective purchase.

To keep your head above water in your new business, stay out on the road as long as you can at a time. This will maximize your income.