Lease vs Buy Trucks: A Worked Fleet Decision Model

A fleet manager receives two quotes in the same week: a dealer price for a new tractor and a full-service lease at a monthly rate. Finance compares the lease rental with the loan instalment, the lease looks dearer, and the purchase order goes out. Three years later the shop budget has doubled, the resale market has softened, and nobody can show whether buying was right.

The comparison only works on after-tax cash, discounted at the cost of the debt that ownership would have used, with every line traced to a document someone owns. Built that way, a lease-versus-buy model gives one number per option, a breakeven resale value that tells you which assumption decides the answer, and an accounting view under ASC 842 or Ind AS 116 that finance can sign.

• Covered here: what each acquisition route includes, the documents behind each input, the NPV formula, a US tractor and an Indian goods carrier worked through, lease classification, and the residual risk hidden in some leases.
• Tools you can reuse: the formula with defined variables, two worked cash-flow tables in USD ($) and INR (₹), and a sign-off checklist for the next acquisition.

Purchase, finance lease or full-service lease: what each price buys

The three routes are not three prices for the same thing. A purchase buys the truck and all its risks, a finance-style lease mainly finances it, and a full-service lease bundles the truck with maintenance, registration and often a substitute unit. The model must compare like with like.

The terminal rental adjustment clause, or TRAC, is a US feature with a specific tax basis. Under 26 U.S.C. 7701(h), a qualified motor vehicle operating agreement that contains such a clause is still treated as a lease if, among other conditions, the lessee certifies in a signed statement that more than 50% of the vehicle's use will be in its trade or business. The clause adjusts rent up or down by what the lessor realises on sale.

Fleet documents that supply each number in the model

Every input should come from a document that a named person maintains, not from a spreadsheet tab. When the model is challenged at the capital committee, each figure must be traceable to a quote, a schedule or a history the business already keeps.

• Dealer quote and build sheet: price, specification, delivery date and any federal or state taxes that are not recoverable.
• Master lease agreement and schedule: fixed monthly rental, per-mile or per-kilometre charge, term, mileage bands, return conditions and any TRAC amount.
• Maintenance work orders: cost per mile by vehicle age from the shop system, which feeds owned maintenance; our guide to preventive maintenance planning covers how those intervals are set.
• Telematics odometer history: actual annual miles per unit on comparable lanes, not the sales estimate.
• Tyre records: casing and retread history from tyre lifecycle records, because tyres are a large share of owned running cost and some leases exclude them.
• Resale evidence: recent auction results and dealer buy-back quotes for the same model year and mileage band.
• Treasury and tax inputs: the pre-tax borrowing rate the fleet would pay and the tax rate the tax team applies.

The after-tax NPV formula and the discount rate behind it

Compare the present value of after-tax cash out under each option, discounted at the after-tax cost of borrowing. A lease is a debt substitute, so the right rate is the one the fleet would pay to borrow, not the company's average cost of capital.

NPV_own   = P + SUM[t=1..n] ( (M_t + A_t) x (1 - T) - D_t x T ) / (1 + k)^t
              - ( S_n - T x (S_n - B_n) ) / (1 + k)^n

NPV_lease = SUM[t=1..n] ( (F_t + v x m_t) x (1 - T) ) / (1 + k)^t

k  = i x (1 - T)                      after-tax discount rate
S* = S_n + (NPV_own - NPV_lease) x (1 + k)^n / (1 - T)      breakeven resale, when B_n = 0

Decision: lease when NPV_lease < NPV_own; revisit if expected resale is near S*

P    purchase price, excluding tax that will be recovered as credit
M_t  owned maintenance and repair cost in year t
A_t  owned registration, permit and admin cost in year t
D_t  tax depreciation claimed in year t
T    income tax rate (set T = 0 for a pre-tax view)
S_n  resale proceeds at exit in year n;  B_n  tax basis left at exit
F_t  fixed lease rental in year t;  v  charge per mile or km;  m_t  miles or km in year t
i    pre-tax rate at which the fleet could borrow for this asset
n    holding period in years; cash flows assumed at each year end

Two simplifications are worth stating on the model itself. Rentals are really monthly and in advance, and maintenance arrives unevenly; annual end-of-year flows understate the lease cost slightly. Fuel, insurance and driver pay are left out because they do not change with the acquisition route, unless a lease bundles one of them.

Fleet lease-versus-buy models should discount after-tax cash at the after-tax borrowing rate, 5.846% when a 7.4% loan meets the 21% federal rate in 26 U.S.C. 11(b), and should report breakeven resale value beside each NPV, because resale assumptions usually move the answer more than the rental.

US worked case: one over-the-road tractor held for 60 months

On these illustrative figures, the full-service lease costs $14,091 less in present value than buying, even with 100% first-year depreciation on the purchase. Owning wins only if the tractor resells above $65,697 after five years, against $42,000 assumed.

The inputs: price $168,000; 120,000 miles a year; owned maintenance rising from $14,400 to $28,800 a year plus $3,000 of registration and admin; resale $42,000 in year five. The lease charges $3,550 a month plus $0.085 a mile, covering maintenance and registration. Borrowing costs 7.4% before tax, and the federal rate is 21%; state tax is ignored for clarity.

• Recovery class: IRS Publication 946, Table B-1, lists tractor units for use over-the-road with a 4-year class life and 3-year GDS recovery; heavy general purpose trucks of 13,000 pounds unloaded or more are 5-year property.
• Special allowance: the 2025 edition records that P.L. 119-21 reinstated the 100% special depreciation allowance for qualified property acquired and placed in service after 19 January 2025.
• Who claims it: Publication 946 says depreciation generally belongs to the owner, so under a true lease the lessor takes the allowance and prices some of it into the rental.

The after-tax resale of $33,180 is $42,000 less tax of $8,820, since the full bonus deduction leaves a tax basis of zero and the whole sale price is taxable. Electing out of the bonus and using the 3-year table in Publication 946 (33.33%, 44.45%, 14.81% and 7.41%) raises the owning NPV only to $192,271, because the shield arrives within four years either way.

That small gap is the counter-intuitive result. Bonus depreciation changes the timing of tax, not the amount, so at a 5.8% after-tax rate it is worth about $1,700 here. The resale assumption is worth far more: each $1,000 of extra resale cuts the owning NPV by about $595.

India worked case: a goods carrier with GST credit and Ind AS 116

On these illustrative figures, owning an Indian goods carrier costs ₹1,22,547 less than a full-service lease in present value before income tax. Owning stays ahead unless resale falls below ₹7,48,111 against ₹9,50,000 assumed, so the Indian answer flips the US one.

The inputs: price ₹38,00,000 before GST; 1,00,000 km a year; owned maintenance rising from ₹2,40,000 to ₹4,40,000 a year; resale ₹9,50,000 in year five. The lease charges ₹82,000 a month plus ₹2.40 a km, covering maintenance. The fleet borrows at 10.5%. The case is shown before income tax; the tax team should add depreciation on the asset block and the treatment of rentals for its own position.

GST is a timing item for most fleets but can become a cost. The 56th GST Council meeting cut the rate on trucks from 28% to 18% from 22 September 2025, so this purchase carries ₹6,84,000 of GST at delivery. CGST Section 17(5)(a) blocks credit only on motor vehicles carrying 13 or fewer persons, and Section 17(5)(b)(i) blocks leasing credit only for those same vehicles.

Indian goods-carrier purchase models should treat the 18% GST on a truck as recoverable credit, since CGST Section 17(5)(a) blocks credit only for passenger vehicles seating 13 or fewer; carrying ₹6,84,000 of GST for one month at a 10.5% borrowing rate costs about ₹5,985, not ₹6,84,000.

The exception is a fleet supplying transport under a GST option that bars input tax credit, or one that is unregistered. Then the ₹6,84,000 becomes part of the truck's cost at year zero, and the GST on every lease invoice becomes cost too, at the rate the lessor charges. Check which position the business is in before the model is finalised, and record it on the model's cover sheet.

Lease classification and the bundled maintenance element

A full-service lease mixes a lease of the truck with a maintenance service, and how you treat that mix decides the size of the balance sheet liability. Under US GAAP it can even decide whether the lease is classed as finance or operating.

ASC 842-10-25-2 makes a lease a finance lease for the lessee if any one of five tests is met: ownership transfers, a purchase option is reasonably certain to be exercised, the term covers the major part of remaining economic life, the present value of payments plus any lessee residual guarantee reaches substantially all of fair value, or the asset is so specialised the lessor has no alternative use. Otherwise it is an operating lease.

Run the substantially-all test on the US case at the 7.4% borrowing rate. If the fleet separates maintenance, valued at $1,250 of the $3,550 monthly rental, the lease component of $2,300 a month for 60 months has a present value of $115,055, or 68.5% of the $168,000 fair value. If it elects not to separate, the full $3,550 gives $177,585, which is 105.7% of fair value.

US fleets electing the ASC 842-10-15-37 expedient on full-service truck leases fold maintenance into lease payments, which in the worked case lifts present value from 68.5% to 105.7% of fair value and meets the substantially-all test in 842-10-25-2(d), turning an operating lease into a finance lease.

Ind AS 116 has no such switch, but the same choice still moves the numbers. Separating ₹30,000 a month of maintenance leaves a ₹52,000 lease component with a liability of ₹24,19,291 at 10.5%. Not separating puts the full ₹82,000 on the balance sheet at ₹38,15,036, slightly above the truck's price. Year one under separation charges ₹7,19,549 of depreciation and interest against ₹6,24,000 paid, so profit is lower early.

Breakeven resale value: the number that decides most truck deals

Report the breakeven resale value next to the NPVs, because it turns a contested forecast into one question: will the truck sell above this figure? In the US case that threshold is $65,697, or 39.1% of the purchase price; in the Indian case it is ₹7,48,111, or 19.7%.

• US reading: the lease wins unless the tractor resells for 56% more than the assumed $42,000; fleets with strong in-house resale channels may beat it, most will not.
• India reading: owning wins unless resale drops 21% below the assumed ₹9,50,000, which a weak used-truck market or an emission-rule change could cause.
• Mileage effect: higher annual miles raise the lease's per-mile charges and lower resale, so run the breakeven at the 80th-percentile mileage from telematics, not the average.
• Maintenance curve: if your shop data show costs flattening after year three, owning improves; if they climb faster, the lease's fixed maintenance becomes more valuable.

Warehouses face the same structure in their own-versus-outsource decision, where exit value and fixed commitments decide the answer; see own warehouse versus 3PL cost comparison for that version of the model.

Lease return and TRAC settlement: where a cheap lease gets expensive

A TRAC lease looks cheap because the fleet, not the lessor, carries the resale risk. If nobody tracks the expected sale price against the TRAC amount, the shortfall arrives as one invoice at return, coded wrongly and missing from the lease liability.

The trace follows one unit through return and settlement. Dates, document numbers and amounts are illustrative.

1. 2 March 2026, 09:10: unit T-4417 returned under TRAC schedule S-118; telematics shows 612,480 miles; TRAC amount in the schedule is $60,000.
2. 19 March 2026: the lessor sells the unit at auction for $41,500 and issues settlement statement LS-2291 showing an $18,500 shortfall due from the lessee.
3. 24 March 2026, 14:35: invoice INV-88213 for $18,500 reaches accounts payable as a "rental adjustment"; the clerk codes it to account 6420 Repairs in transaction AP-INV-60217.
4. 3 April 2026, close day 3: the controller finds the lease subledger never included a residual guarantee amount, so the quarter shows an unbudgeted repair spike and no lease remeasurement.
5. Controlled version: from month 30, a quarterly review compares the TRAC amount with auction evidence; an expected shortfall updates the lease payments through 842-10-30-5(f) and the budget well before return.

Full-service leases carry a different return risk: charges for damage beyond normal wear and for kilometres above the contract band where a fixed allowance applies. The cure is the same. Read the return clause into the model at signing and add an expected return cost to year five.

Coded model rules versus AI help with lease schedules and quotes

The arithmetic, the discount rate source and the classification tests must be fixed rules that an auditor can rerun. Reading a 40-page lease schedule or sorting auction comparables is where an assistant can save an analyst hours, provided a person confirms every extracted figure.

Sign-off checklist before a fleet lease or purchase order

Hold the purchase order or lease signature until each line below has an owner's sign-off. Most poor fleet decisions trace back to one unchecked input, usually resale or mileage, rather than to a wrong formula.

Fleet finance sits alongside other modelling problems in the Logistics and Supply Chain collection. The closest existing model there, the open-to-buy and warehouse cube constraint model, balances a merchandise budget against storage space; this article applies the same discipline of sourced inputs and worked arithmetic to a capital asset with a five-year life.

If you are standardising lease-versus-buy decisions across a fleet and want the model, document trail and lease subledger designed together, you can send us a request for proposal with your fleet size, acquisition plan and current accounting basis.