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Old 29-01-2015, 12:33   #1
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Financing: New vs Used

I know I should talk to my bank, but I hate talking to my bank. Just got back from the Vancouver boat show and the whole idea of buying new popped up again. There is remarkably little online information available from (Canadian) banks on loan rates and the options available.

I was wondering if anyone had a 30 second course in financing your first boat. Let's say I have $100,000 and am wondering about buying A) a used 40' boat outright, B) a fairly recent (call it 5 years old) 40' with a smaller loan or C) going whole hog and buying a brand new 40' with a 10-20 year mortgage.

Any sage advise? Marine loan interest rates? Requirements to qualify? Canadian specifics would be good but not necessary as I am really just trying to wrap my head around the options.

Thanks
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Old 29-01-2015, 12:59   #2
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Re: Financing: New vs Used

Iíve been looking at this extensively during the last few months as we considered our options. The short answer is that the answers vary so much that what matters is what the bank willing to lend you require. For example, in terms of qualifications, I have seen requirements ranging from 20% down and payments no more than 20% of disposable income (what is left after all bills are paid) to 30% down and liquid assets in excess of the boat purchase price. In terms of interest, it appears the range is usually between 5 and 10%. One thing to keep in mind is that most loans I have seen are for 5-15 years max, which impacts your calculation of what monthly payments you can afford.

Essex credit in the US has provided some great info. Maybe there is something similar in Canada
https://www.essexcredit.com/

Best of luck!
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Old 29-01-2015, 13:18   #3
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Re: Financing: New vs Used

I'm no financial wizard, but I do live under the rule of never finance what you can buy, and if you can't pay for it, you don't need it.
Financing a depreciating asset is a losing proposition, doubly so. First the interest of course, secondly the huge depreciation.

Course I bought an old boat and am defending my decision of doing so too.

On edit, I actually financed most of it over a long time loan as well, you never know, right? But paid it off in the first year of the loan. I did it through USAA at about 3% I think, only way to get real good interest rates is to show you don't need to borrow money I guess.
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Old 29-01-2015, 14:17   #4
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Re: Financing: New vs Used

Talk to your bank but shop around. You'll be sorry if you do not.

There are some awfully good deals on used boats, ones of quality, which usually means someone else has taken the brunt of depreciation. Buy a new one, and you take the hit for depreciation.

If you have excellent credit, money now is cheap to borrow. Expect a 20% down payment on any loan for a used boat, which means an 80% loan. Whether you buy one that is 5 years old or 10 years old (or older) is your call, but in reality the condition of the boat will or certainly should be a major factor, both for you and your bank.

Each bank or loaning agency is likely to have its own parameters for a loan. By that I mean how much disposable income you have available after all your obligations are taken into account, job history (steady income--they like it when you have been employed at a single place for many years), credit history, investments or assets, and so on. Bottom line--you have to talk to the banks and find out what these parameters are. There is a lot of paperwork involved and you don't want to waste their time or yours if you could have found out up front you don't qualify on account of some bedrock rule (e.g., been employed at same job for five years). Bank loan departments want to make loans, but they do have rules, so find them out up front.

As to A64pilot's belief that it is unwise to take a loan on a depreciating asset, there is certainly something to be said for that. On the other hand, I like having a big cushion in the bank and other investments. I'd rather not take it all out or even a decent fraction to buy a boat free and clear. I took a 20 year loan, but I know I won't own the boat that long. So I see the loan as renting the bank's money for a few years. Rates are low. Mine was under 4% for a twenty year loan, but the Essex site shows 4.2% or so. Of course, I say this from a perspective of remembering all too well when a house loan in the Jimmy Carter years cost 15%, so .....
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Old 29-01-2015, 19:48   #5
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Financing: New vs Used

I have to agree with A64pilot. Don't go getting yourself locked into a long term loan. With $100k you can buy a good used older boat, and still have money left over for some upgrades. If you do choose to finance some of the purchase price, you don't need to get a loan, just get yourself a line of credit. That way, you can pay it off as fast as you like.

That's what I did, and it has worked out great. As soon as you tell the bank you want a loan for a boat, prepare for a long process, and a ridiculous rate. With a line of credit, they don't ask, nor do they care what you are doing with it. If you have some equity in your home, you can get a secure line of credit, and get a better rate ( usually around prime, which is 3% right now).

Also, don't limit your choice to boats in Canada. I bought my boat in the states, and had it shipped up. Better prices ( even with our dollar sinking like a rock), and a better selection. I couldn't believe how easy and efficient the entire process was. Even with the shipping fee, taxes, customs broker fee, and exchange rate, I still got my boat for $20,000 cheaper than the same boat in Canada.

If you're interested in buying in the states, feel free to PM with any questions, I'd be glad to help you out.


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Old 29-01-2015, 20:07   #6
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Re: Financing: New vs Used

A line of credit is an option. Good idea if you need a wad of cash in a hurry--like as fast as you can write a check.

Unless things are different in Canada, however, the bank putting up the line of credit will want collateral. In this case, as Morgan Sailor suggested, your house. There will be lots of paperwork--you are placing another mortgage on your house or whatever collateral you put up to secure the line of credit. Remember, it is a secured loan. Pretty much the same paperwork as the mortgage on your house. Of course, if you use the line of credit and cannot make the payment, the holder of the loan takes the collateral to satisfy the obligation. Is the risk of losing the roof over your head worth the 1% difference between a line of credit and a bank loan? Winters are cold in Canada.
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Old 29-01-2015, 20:15   #7
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Re: Financing: New vs Used

There is this "fear" of buying used when you are essentially a n00b. I want a reliable boat that will teach me things without leaving me stranded and panicking over too many things at once. The internet makes cruising a scary place :-)

I will admit if we went new we would likely make a deal with the charter company we have a relationship and charter the boat for half the summer while we weren't using it. That offsets the difference, allows me to hopefully buy it as a business and helps with maintenance, upkeep and overwintering. Then in 5 or 10 we sail off into the sunset...

The real issue stems from the fact I chartered 5 weeks last year and that is going to drain my cash reserves pretty damn quick. If I "invested" that in ownership I might actually have something to show for it after all is said and done. Not looking for a profit mind you, just hoping to not piss it away learning and have nothing left to actually go sailing on.
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Old 29-01-2015, 20:15   #8
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Financing: New vs Used

It won't be a 1% difference. Car loans are running around 8 or 9 % from a bank right now. My guess is a boat loan will be similar. A secure LOC will cost you 3.5% at most. Also, with a secure LOC, if things get tight, you only need to pay the interest portion of the monthly payment. If you can't afford that, then you shouldn't be looking at financing as an option.

Just read your last post. I know nothing about putting a boat into charter, so I can't help you there.

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Old 29-01-2015, 20:23   #9
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Re: Financing: New vs Used

Nothing wrong with financing, it's a tool.

Boat loans are <5% right now.

Example:
BoatUS Boat Finance
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Old 29-01-2015, 20:34   #10
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Re: Financing: New vs Used

Mac, you are now essentially asking the existential "how should I buy a boat?" which is the title of your subject.

But, subjectively speaking, your $$ matters are your issue and only your own. I'd think twice about divulging any more details. They're youor business.

The options should be pretty clear to you by now.

But, basically, it's your boat, your choice. Two views of the value of money, and, quite frankly, there aren't any other ones I know of...

Good luck, but buying used boat in great condition is a lovely feeling.

When I bought, there was a 2:1 relationship between the same boat new : used. We found a used "keeper."


Quote:
Originally Posted by Macblaze View Post
There is this "fear" of buying used when you are essentially a n00b. I want a reliable boat that will teach me things without leaving me stranded and panicking over too many things at once. The internet makes cruising a scary place :-)

I will admit if we went new we would likely make a deal with the charter company we have a relationship and charter the boat for half the summer while we weren't using it. That offsets the difference, allows me to hopefully buy it as a business and helps with maintenance, upkeep and overwintering. Then in 5 or 10 we sail off into the sunset...

The real issue stems from the fact I chartered 5 weeks last year and that is going to drain my cash reserves pretty damn quick. If I "invested" that in ownership I might actually have something to show for it after all is said and done. Not looking for a profit mind you, just hoping to not piss it away learning and have nothing left to actually go sailing on.
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Old 29-01-2015, 21:37   #11
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Re: Financing: New vs Used

Quote:
Originally Posted by a64pilot View Post
I'm no financial wizard, but I do live under the rule of never finance what you can buy, and if you can't pay for it, you don't need it.
Financing a depreciating asset is a losing proposition, doubly so. First the interest of course, secondly the huge depreciation.
+1. I live by the financial breadcrumb that the prefix "mort" in mortgage reads something like "death" in the latin

My personal preference would be a used boat with a good guts and not a lot else on it. It could be outfitted to my own specs as I discovered what I really wanted on it, while really getting to know the boat/systems in the process.

Thats my 2c. Either way you wont be disappointed!
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Old 29-01-2015, 21:55   #12
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Re: Financing: New vs Used

I would go option A or B and definitely NOT C.
Boats cost and sometimes its big. make sure you can afford all the upkeep, repairs etc because they add up quick and job security these days fluctuates.
My view (but I am in Australia) is that a reasonable boat would only just start at 100k and go up from there, maybe you could get something reasonable in Canada not sure. Maybe use 80K borrow 80K and have 20K in an offset account against the borrowed money just in case?
Good luck and whichever way you go I'm sure you will love it
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Old 30-01-2015, 05:57   #13
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Re: Financing: New vs Used

Buying a boat (new or used) for the first time (and maybe others) is a scary but exciting activity. That you recognize you are a newby is a positive sign. Don't ever be reluctant to ask questions. Going to boat shows and talking to salesmen is but one step. There are boat reviews out there, and while they are not overly helpful in my view, they are worth a look. Forums like this one will have a more critical aspect that can be helpful. As you find specific models that interest you, ask people on the forum about those types. As you can see in this exchange, you've gotten differing perspectives just on financing that have made you think.

Both buying new and used has advantages and disadvantages. I think you need to determine in broad terms what kind of boat you want, e.g., mono or cat, cruiser or racer, CC or aft cockpit, size, etc. Then you look at brands and models--and when you get that specific the cost will be the major factor in going new or used. It will also determine whether you buy outright, finance or partially finance. While buying a new boat has advantages, don't let the fear of buying used one keep you from sailing. There are tons of wonderful used boats out there. Not every owner is getting rid of a lemon. A good broker (and there are such--ask around) will really help you. And as you look, you'll become knowledgeable and you will see which used boats have had lots of love and which have not. You can hire experts for the technical things. As you can tell if you read this forum, some people have had bad deals, but many will admit they did not do what any good businessman would call due diligence.

As for buying new and putting a boat in charter, lots of people do that. There are threads on this forum, but if you are interested, start your own. People will want to help. I have no experience there, so I'm backing out.
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Old 30-01-2015, 06:06   #14
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Re: Financing: New vs Used

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Nothing wrong with financing, it's a tool.
True. It is a tool. Like any tool, when used properly it can make things much easier. And, like any tool, when used improperly it can damage things almost beyond repair.

The problem is that way too many people use the "tool" of financing in horribly improper ways.

Financing a depreciating asset is not ALWAYS an improper use of financing, but quite often it is. At the least, it is a case where you can get in way over your head if you do not clearly understand, up front, exactly what you are doing. It is a case where you must always tread carefully.
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Old 30-01-2015, 06:47   #15
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Re: Financing: New vs Used

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My personal preference would be a used boat with a good guts and not a lot else on it. It could be outfitted to my own specs as I discovered what I really wanted on it, while really getting to know the boat/systems in the process.

Thats my 2c. Either way you wont be disappointed!

That is exactly what I did, my IP didn't even have any kind of windlass, Autopilot, Radar, davits, etc. Makes you wonder what they did with the boat.
Anyway getting everything like I want it is costing more than I thought, and taking longer. The up-side is I'll be intimately familiar with all the systems as I will have installed them, they will all be new, be exactly what I wanted and of a higher quality and size than you get in almost any new boat, as I'm cherry picking the best of everything.
Think of it as sort of a custom boat, just done poor man style

In a manner of speaking, I'll have an older hull and mast, winches etc, but all the higher maintenance systems will be new or nearly so.

Total cost is about 1/4 of a new IP, although I never did get into a serious discussion of what one of those cost.

I can't even justify the cost of a new car as opposed to used anymore, even though last car I bought, I bought new.
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