What is a Turn-In lease?
A turn-in lease for fire apparatus is a conventional 5 or 7 year municipal lease purchase with 1 important difference- You can't pay a $1 at the end to own your apparatus after making the payments.
You have 2 choices:
1. Buy the truck at about 30% - 50% of the original cost, or
2. Turn it back to the manufacturer if it meets certain requirements (or pay penalties for the manufacturer to accept the truck as-is)
A Turn-In Lease is perfect for fire departments who:
1. Have a formal replacement program that replaces fire trucks every 5 or 7 years, and
2. Will maintain the trucks within the operating requirements of the manufacturer, and
3. Is 100% sure they will buy the replacement truck from the same manufacturer, or
4. Is not worried about raising or borrowing money if they choose to purchase the truck in 5 or 7 years.
Discipline is required to maximize the effectiveness of a Turn-In Lease. If your department has exact plans and executes its financial and operating plans well, a Turn-In Lease is a great option. Be sure you're OK with the 4 conditions listed above. A Turn-In Lease is not perfect for fire departments who:
1. Is not fully committed to replacing their truck in 5 or 7 years, or
2. Does not feel confident that they can maintain the truck according to the manufacturer requirements, or
3. Is not confident that they will buy a replacement truck from the same manufacturer, or
4. Has concerns that they can not raise the cash to buy the truck or worry about higher interest rates in 5 or 7 years to borrow the purchase price.
If any of the above conditions describe you, a Turn-In Lease is probably not the best choice for you. How does a Turn-In Lease work?
A Turn-In Lease is a conventional fire truck lease purchase that requires 5 or 7 annual payments and a large balloon payment at the end. The contract lets you buy the truck for the balloon payment amount or lets you "turn-in" the fire truck for a new truck if you 1.) buy a new truck from the same manufacturer and 2.) the fire truck is kept according to the required condition specified in the contract terms.
If your fire truck does not meet the requirements, you will have to pay penalties to compensate the manufacturer for the required conditions not met.
It's important to know what the requirements are! Get a copy of the requirements upfront and have them signed as part of your contract to ensure you know the rules.
Does a Turn-In Lease save money?
Yes and No. The complete answer is it depends. If you use your fire truck exactly as the manufacturer requires you and would just finance your truck for the same 5 or 7 years, you'd pay lower payments each year for the budget. Most manufacturers present a "money-saving" comparison using a 5 year Lease Purchase which match how you would finance the fire truck. This isn't always true - see HELPFUL HINT below.
A Turn-In Lease will be more expensive if you finance your fire truck for longer than 5 or 7 years. Here's why:
HELPFUL HINT: The Turn-In Lease payments are based on a 8 1/2 year payment schedule. Choose a 9 or 10 year payment schedule if you like the payment amount of the Turn-In Lease but are turned off by some of the other factors of the Turn-In Lease.
Should I use a Turn-In Lease?
Each department has to make that decision for themselves. This article can not tell you the "right" way - every department is unique! There is no universal right way. I've talked with departments that had great success with Turn-In Leases and I've talked to departments that had a disaster.
The key factor is to do a thorough analysis of the terms and conditions of the Turn-In Lease and decide if its right for you.
If you feel like you may not be fully understanding the exact details of the Turn-In Lease offer, get some help. After all, the devil will be in the details of this complex financial offering.
