How Semi Truck Financing Works: Payments, Interest, and Lease vs Buy

The truck payment is usually the biggest fixed bill an owner-operator has. Before you sign, you should know three things: the monthly payment, how much of what you pay is interest, and whether leasing the same truck would cost you more or less over the same stretch of time. You can work all three out yourself.

What goes into the loan

Amount financed = price − down payment − trade-in, plus any sales tax and fees you roll into the loan.

• Sales tax depends on your state and how the truck is titled and used. Some states let a trade-in lower the taxable price. Check with your state's revenue department or your dealer.
• Fees include title, documentation, and registration. Rolling them into the loan means you pay interest on them too.
• APR is the yearly interest rate. The monthly rate is APR ÷ 12.
• Term is the number of monthly payments.
• Balloon is a lump sum due with the last payment. It lowers the monthly payment, but you have to pay it off or refinance it at the end.

The payment formula

Payment = (P − B ÷ (1 + r)^n) × r ÷ (1 − (1 + r)^−n), where P is the amount financed, B is the balloon, r is the monthly rate, and n is the number of payments. With no balloon, it's the standard loan payment formula. At 0% APR, the payment is just (P − B) ÷ n.

Each month, interest is charged on the balance you still owe. Whatever's left of your payment goes to principal. Early on the balance is high, so more of each payment is interest. That's why the balance drops slowly in year one.

Worked example

These numbers are made up to show the math. They aren't a quote or a typical rate.

• Truck price: $120,000
• Down payment: $15,000
• Fees rolled into the loan: $1,500 (no sales tax in this example)
• APR: 9%, over 60 months

Amount financed: $120,000 − $15,000 + $1,500 = $106,500. Monthly rate: 9% ÷ 12 = 0.75%. The formula gives a payment of $2,210.76.

Over 60 months you pay $2,210.76 × 60 = $132,645.60. Subtract the $106,500 you borrowed and $26,145.60 of that is interest. In the first year alone, about $8,868 of your payments goes to interest, and the balance only drops to about $88,839.

Your total cost for the truck is the $15,000 down plus $132,645.60 in payments, or $147,645.60.

Shorter term or a balloon?

• 48 months instead of 60: the payment rises to $2,650.26, but total interest falls to $20,712.48. You save about $5,400 in interest and pay about $440 more each month.
• 60 months with a $20,000 balloon: the payment drops to $1,945.60, but total interest rises to $30,236, and you still owe $20,000 at the end.

A lower payment isn't the same as a cheaper truck. Check what a lower payment costs you in total before you pick it.

Lease vs buy

To compare fairly, add up everything you'd pay over the same number of months both ways, and account for who owns the truck at the end.

• Buy = down payment + trade-in + upfront tax and fees + all payments + balloon + maintenance − what the truck is worth at the end.
• Lease = due at signing + all lease payments + maintenance. If you buy it out at the end, add the buyout and subtract what the truck is worth.

Continuing the example, say a lease on the same truck is $2,400 a month with $5,000 due at signing, and you'd hand it back at the end. You expect maintenance to run $900 a month if you own it and $600 a month on the lease, because the lease includes some coverage. You guess the truck will be worth $45,000 after five years.

• Buy: $147,645.60 + ($900 × 60) − $45,000 = $156,645.60
• Lease: $5,000 + ($2,400 × 60) + ($600 × 60) = $185,000

In this example, buying costs about $28,354 less over five years. Change the resale value or the maintenance numbers and the answer can move a lot, so try a low and a high guess for each.

What these totals leave out:

• Taxes. Lease payments and loan interest plus depreciation are deducted differently. Ask your tax preparer how each one would work for you.
• Cash flow. A lower payment can matter more than a lower total if cash is tight.
• Lease terms. Mileage limits, return conditions, and early-exit penalties can add costs that aren't in the monthly payment.

Before you sign

• Get the APR, term, amount financed, and total of payments in writing.
• Ask whether there's a prepayment penalty and whether a balloon is required.
• Find out what fees are being rolled into the loan.
• Put the payment into your cost per mile and make sure your rates can carry it.

Run your own deal in the semi truck payment calculator, then add the payment to your cost per mile. If you're just getting started, the startup cost calculator shows how the down payment fits with everything else you need.