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Old 21-05-2012, 19:00   #1
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Boat Loan. How did you choose your terms?

As I contemplate the possibility of getting a boat and looking into loans and such, a few things jumped at me. These ones below strikes me the most. Please correct me if wrong:

** A new boat price vs a boat 3-5 year old. New seems to loose about 1/3 of cost by 3-5 year mark. Then, it seems to hold price for a while depending on add-ons. Sure new is new, and it comes with all the benefits of new. However, to me the loss of a 1/3 of the cost in that time period is not worth the benefits of new.

** There are a lot of poorly cared for 5-8 year old boats out there. Surprisingly, but there are.

** Most boats in marinas seem to move hardly ever, and I am in south FL!!! It scares me to become one of these in a few months.

Given what I said above, I looked into boat loans. For the size of boat and using the max price I would be willing to pay, I compared a 10 year loan to a 20 year loan (same interest rate of 4.99%, same max price of $145K, same 20% down payment, same boat age of >2004). Knowing me, I know <5 years or so down the road I would want something different/newer. Not necessarily more expensive, but chances are it will be. I'm not the type to upgrade things, so I would be getting something right off the bat now that has pretty much everything I want on day one.

Given this scenario, which makes more sense? 10 year loan or 20 year loan? Of course, the 20 year loan has a much lower monthly payment($1,230 vs $765), which frees up enough money to pay for the slip and insurance. But, in the long run, is it worth it to have the 10 year loan instead if one could carry it? I prefer to accrue equity on the boat that can be used for down payment later rather than have to come up with more cash for the trade down the road. However, the higher payment also means less free money along the way for incidentals and such (tighter budget now). Does that make sense?

Please, educate me on how you chose your terms and why. Of course, it goes without saying this is aimed at people with loans and newer boats.

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Old 21-05-2012, 21:57   #2
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Re: Boat Loan. How did you choose your terms?

Look at the principal/interest curve. You won't accrue much additional equity in either case in 5 years but if you are viewing the principal payoff as "forced savings" get the shorter loan. You will have paid down more principal in 5 years.

The boat will also continue depreciating.

The alternate view is get the 20year loan and consider the interest for 5 years "the cost of sailing" - toss the additional $445 in a Dow fund or something equally benign and watch the investment grow basically at the rate of the whole economy for the next 5 years.

At 5 years @ 3% you should have around $29k in funds + original 20% equity of $29k (perhaps minus some depreciation) or $56k down for the next boat. Plus you may have paid a couple of thousand on the original principal.

Finally - Stick the current $29k downpayment in the dow, invest additional $1230 a month @3% and at 5 years have about $112k + anything you will have spent in maintenance, insurance & mooring for the 5 year period. Call it $8k a year or another $40k.

Buy a dinghy in the meantime and charter for 5-6 days each year and in 5 years you buy the boat cash.

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Old 21-05-2012, 22:27   #3
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Re: Boat Loan. How did you choose your terms?

Don't borrow money for non-necessities/toys. It is worse with boats because there are continuous costs of ownership (berthage, maintenance, insurance, taxes, etcetera). It's surprising how fast one can save up to pay cash for one's toys by not paying interest on a loan and deferring the costs of ownership. Bank the money you're avoiding now and you'll have a big nest egg to buy something you can afford.
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Old 22-05-2012, 04:17   #4
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Re: Boat Loan. How did you choose your terms?

Assuming the interest rate is the same I would (and did) take the longer term loan. But I send more money and make regular extra payments to reduce the interest of the term life.

If you take a 20 year loan instead of the 10 year and just pay it off in 10 years; its' the same thing as far as interest paid.

I like having the reduced payment requirement in case other items come up. Of course you have to stick to your plan and make the extra payments.
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Old 22-05-2012, 04:28   #5
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Re: Boat Loan. How did you choose your terms?

Your statement regarding the boats 'new' value compared with a couple of years old is true, you really are paying a premium for the 'new factor'. It's just the same as a car. Buy a new car for 20k and it'll be worth 15k as soon as you register it and drive it off the forecourt.

Personally, especcialy with boats, i'd not want to buy anything newer than 2 years old as the way I see it, the vessel will have had all those little niggles sorted out by then and i'd be saving 30% into the bargain! Also, boats have a much longer 'shelf life' than a car, it will take a real expert to spot a well cared for 2 year old model compared to a brand new one.

As for finance, i'd personaly say go as short as you can afford. A boat is ALWAYS going to depreciate in value and so adding to that cost with an extra 10 years of interest payments doesn't make sense to me.
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