How to save money when financing a fire truck

Finance costs can regularly amount to a third or half of the price of a fire truck

By John Hill
First Bankers

Most people who finance a fire truck are thrust into a situation they've never faced before… and are expected to tackle a big-dollar, complex decision correctly.

Finance costs can regularly amount to a third or half of the price of a fire truck. That is about the cost of the chassis for most fire trucks.

But departments spend only a fraction of the time they would on determining the correct chassis and its cost.

It's not fair to thrust someone into an unfamiliar role and then just hope for the best. And, it's reasonable to expect someone in this situation to try to simplify the complex choice of financing options. And that is how mistakes are made and money is wasted.

By trying to simplify the finance choice, most fire departments make an expensive mistake. People try to boil down the choice by assuming financing a fire truck is like getting a car loan or a mortgage. Yet, it's vastly more complex than comparing rates on a 60-month car loan or a 30-year mortgage.

It's easy to assume that only one thing controls how much finance cost is paid — the interest rate. So, people call around and ask for the "best rate." Then, assuming the lowest rate is the best deal, they choose the "best rate."

Nearly $10,000 can be wasted by doing it this way. In today's world, that amount is quite substantial.

In choosing the "best rate," the wrong thing is being measured. Interest rate can be legally disclosed several different ways (for example, the difference between Interest Rate and APR). Second, it does not fully measure the true costs of financing a fire truck.

The best measurement is called "Total Borrowing Cost." It's the complete and comprehensive way to measure exactly what amount is paid to finance a fire truck.

It's measured in dollars, not some vague notion as percentage rate. After all, when you pay payments, you write the check in dollars, not percents.

Total Borrowing Cost measures all Total Borrowing Cost factors that determine how much you will pay to finance the truck.
The Total Borrowing Cost factors are:

1. Amount financed

2. Financing term

3. Payment frequency

4. Payment timing

5. Interest rate gimmicks

6. Fees and costs

7. Interest rate 

When a department analyzes all factors, they will usually save $10,000 or more in wasted financing costs.

Also, by using something that is concrete, like a total amount paid rather than a vague concept like "interest rate," a department can have a quality "apples to apples" comparison.

Here's a very frequent mistake. Most departments choose annual payments for their fire truck. And most annual payments are based one year after the truck is delivered.

We'll compare two financing offers to see how Total Borrowing Cost rather than interest rate comparison is more complete.

Let's say that the department receives its funding in February each year and has the budget to pay the payment in February.

Some details about the truck in this example:

Truck price: $300,000
Delivery Date: September 2011




Financing Option #1


Financing Option #2

Interest Rate





10 payments


10 payments

First Payment Date

September 2012


February 2012

Payment Amount




Total Borrowing Cost

10 times $36,987 or


10 times $36,329 or $363,290









If a department relied only upon interest rate and ignored the other Total Borrowing Cost factors, the department would spend more than $6,500 in wasted interest — even though the interest rate on Option #2 was slightly higher.

Using Total Borrowing Cost, the department learned how to save $6,580.

In this case, the slight tweak to Payment Timing (Total Borrowing Cost factor #4) more than offset the slightly higher interest rate.

And, as fire truck prices increase, the benefit from a Total Borrowing Cost analysis becomes even greater.

Of course, this example is just one small way to understand and reduce Total Borrowing Cost. Other factors can reduce this cost even further.

 Financing a fire truck is expensive and complex. With financing costs sometimes equaling half the price of a fire truck, a comprehensive method to measure financing costs are needed to save money.

Total Borrowing Cost analysis offers such an exact and useful comparison method. It provides an exact value and an effective way to compare financing offers.


About the author

John R. Hill is an apparatus budgeting consultant for First Bankers, which helps fire departments avoid common financial mistakes that are made in the apparatus purchasing process. John also writes a weekly Web site column on


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