Bank to finance - older boat

[flightlead404]

Originally Posted by TrentePieds

Taking out a loan to buy an old boat defies all managerial common sense.

Loans are justifiable, and indeed the soundest financial policy, if their proceeds are used to buy tangible assets whose market value will APPRECIATE faster than the aggregate of the loan's interest rate and anticipated rate of inflation, OR if the proceeds are used to fund activities that generate a NET POSITIVE CASH CONTRIBUTION to the borrowers economic activities.

Boats are NEVER productive of NET positive cash contributions. Quite the contrary!
Any contribution to the owner's general economic activities made by a boat will ALWAYS be NEGATIVE. Boats are always DEPRECIATING assets.

Bank lending officers learn that in Finance 101. That is why they will not make loans for the purpose of buying old boats.

Furthermore, when a bank lending officer advances cash, ostensibly for the purpose of buying an old boat, secured by the buyer's equity in real estate, whether the security be called a "mortgage" or a Line of Credit, the officer does so in anticipation of being able to turn a profit for the bank by seizing and selling the borrower's real estate when the borrower goes up the financial flue. The real purpose of such loans, as opposed to the ostensible one, is to make the bank richer and the borrower poorer.

No man should ever spend more money on a boat - whether buying it or maintaining it - than he can walk away from with a smile still on his face.

All the best

TrentePieds

Concur. Further, I can't imagine borrowing money to pay for a toy. Makes no sense to me. Maybe I'm missing something.

[JimsCAL]

Boat loans and car loans are similar, Both are depreciating assets. Yet the vast majority of car buyers finance the purchase and don't give it a second thought. A well cared for older boat depreciates very slowly compared to a new car.

[Simi 60]

Originally Posted by JimsCAL

Boat loans and car loans are similar, Both are depreciating assets. Yet the vast majority of car buyers finance the purchase and don't give it a second thought.

I am generalising a bit here but I reckon the vast majority live paycheck to paycheck always chasing their tails for the rest of their days

I agree with others, folding money for toys
Borrowed money for income producing assets.

[brendanwalls]

I think if you intend to use it as a liveaboard, then it's no longer a toy and it will still need maintenance, and unless your pristine, is unlikely to appreciate much.

I live in a charming Severn River-front cottage, rented way below market price, and I suspect my landlady is going to make a correction next year. If it becomes untenable, the only waterfront homes I could afford to buy are boats, for which I might seek a loan.

B

[Stewie12]

If you pay cash you will save on paying interest,. Could be about 7%.

[Mango51]

I just called IThink financial. Gave them the information you provided. They said it’s possibly they need more information.
There phone # 561-982-7701. (Loan department)

Good luck. 👍

[outbound_308]

So I will be in a similar situation when I retire. Let's say I have 500,000 saved up. I have that invested in a couple of dividend paying mutual funds that pay for 9% to 11% monthly. so that's a little under 5000 a month income from my investment, never touching my savings.


I feel like it would be very safe to lend me money and I would much rather pay for a boat out of the money my money makes vs my principal. Is this just not a possibility ?

[Puget Dan]

If you have Stocks at a brokerage firm they will let you borrow up to 40% of the value in a margin account. Schwab's rate is about 4.5% IBK has a 2% margin loan rate. Still you need assets to borrow against.

[outbound_308]

I would be willing to put the stock up for collateral as well if that's possible. I will talk to a my financial advisor when it's time, but that's six years from now. I would think there has to be a way.

[TrentePieds]

All you have to do to get a loan is prove to the lending officer who handles your application that you satisfy his institutions policies in regard to "the five 'C's of lending":

1) Market conditions: You have no control over those, so apply when "money is easy". Don't apply when "money is tight".

2) Character: Basically encapsulated in your "credit score" reflecting your competence in money management and your general reliability.

3) Capacity: As evidenced by your several past years tax returns showing enough after tax income to meet your present contractual obligations PLUS the obligation of the new loan AFTER a "reasonable" amount of income has been set aside for living expenses for your particular family. This includes considerations of education expenses, such a university tuition fees for any children not yet independently established.

4) Capital: Net worth (calculated as per Generally Accepted Accounting Principles) subject to a "stress test" showing that in a "winding up" of your financial affairs you would have a residual net worth sufficient to reestablish yourself.

5) Collateral: Sufficient UNENCUMBRED, readily disposable assets to pay off the loan plus associated administrative expenses in the event that the lender has to "execute". The lender will want these assets encumbered in his name, so he has the right to dispose of them and realize their value in satisfaction of the loan should that become necessary.

So you see - getting a "consumer loan" is dead easy! All you have to do is get rich BEFORE you apply for it, or, better still, get so rich that you don't need the loan! :-)

Cheers

TP

[outbound_308]

The collateral will be the hard part as I plan on selling everything and moving aboard. I just don't need stuff being a single person. Not sure if I can count investments as collateral and still receive a dividend from them.


I apologize, I know this is all first world problems, please realize I will be doing this at 57 and not 27, so how I do it may be different. The point is we all want to go do it and everyone has their own situation.

[Lake-Effect]

Originally Posted by JimsCAL

Boat loans and car loans are similar, Both are depreciating assets. Yet the vast majority of car buyers finance the purchase and don't give it a second thought. A well cared for older boat depreciates very slowly compared to a new car.

Automobiles are common, there's lots around, easy to buy and sell, and fairly predictable in terms of depreciation. And most people are used to having one, including carrying the costs. So it's an easy loan to predict risk on. Also, they don't often grant substantial loans on 20+ yr old cars.

Boats are far fewer, in a wider and othen indeterminate condition, and are harder to buy and sell. Especially older boats. A much riskier security for a loan than a late-model auto.

[C420sailor]

It all depends on the rate.

I could’ve put a ton down on my house and had a nice low monthly payment. Instead, I chose to put down the minimum and invest the rest. With a fixed interest rate at 2.75%, it made sense. I’ve been averaging at least 10-12% in this market, closer to 17% this past year. It was a solid decision.

In some situations, it makes more sense to use your own money at a low rate than to pay cash.

That said, a loan on an old boat is going to have a high rate.

[Dooglas]

Originally Posted by TrentePieds

Loans are justifiable, and indeed the soundest financial policy, if their proceeds are used to buy tangible assets whose market value will APPRECIATE faster than the aggregate of the loan's interest rate and anticipated rate of inflation, OR if the proceeds are used to fund activities that generate a NET POSITIVE CASH CONTRIBUTION to the borrowers economic activities.

Boats are NEVER productive of NET positive cash contributions. Quite the contrary! Any contribution to the owner's general economic activities made by a boat will ALWAYS be NEGATIVE. Boats are always DEPRECIATING assets.

While this is certainly true, it also argues against financing newer boats. Indeed, brand new boats depreciate at the highest rate, just like brand new cars. The depreciation rate on older boats is entirely a function of how well cared for they are.

[thomm225]

The way to go is to buy an older boat that you feel comfortable paying cash for say $2,000 - $45,000.

That's what I did, and it has worked out okay. Plus I only had to get liability insurance. ($10/Month for $500,000 coverage)

I've had the boat now for 10 years.