Used boat financing

[xpjim1]

All my toys I pay cash. I hate payments. If I do not have cash for the toy I do not buy it. I hate monthly payments. Kind of old school thinking for me

[MikeB313]

Think about it this way and compare to a vehicle purchase because more people can relate to that. Purchasing a car is similar to purchasing a boat with a few notable differences. Both cars and trucks as well as new boats have seen substantial price increases over the last decade. With the price increases, lenders in both areas have started offering longer terms to allow for lower monthly payments. The biggest differences between boat and automotive financing are the life cycle of the product, depreciation, and to a lesser degree warranty. As an example, most three year automotive leases build nearly 50% of the original purchase price into the cost of the lease as depreciation to allow the leasing company to resell the vehicle at the end of the term. This is done because most new automotive purchases have depreciated roughly 50% in three short years. Because of this, if a person has a 72 or 84 month auto loan on a new vehicle, they will frequently be “Backward” or in a position where they owe more on the loan than the vehicle could be sold for. That buyer is trapped in the loan until they can either pay the loan in full, pay the difference between the vehicle’s real market value and loan value, or try and finance the negative equity into a new vehicle purchase.
When customers see 20 year terms available for boat loans, they frequently equate the well earned negative consequences of long term auto loans to boat financing. The initial response is that if a 72 month auto loan is bad, a 240 month boat loan must be HORRIBLE!
The reality could not be farther than the truth. A 20 year boat loan gives the buyer all of the flexibility. you can pay off or refinance the loan at any time without any penalties. Long term loans are the reason that leasing is not a common form of boat financing. Nobody would lease a boat when they can spread the depreciation over a 20 year period. Banks are willing to offer longer term boat loans because unlike a 10 year old automobile, a ten year old boat still holds a high percentage of its original sale price and has a lot of useable life left. Consumer Reports says the average life expectancy of a new vehicle is around 8 years or 150,000 miles. Virtually every 10, 15, or even 20 year old boat is still on the water. Because of a longer life cycle, boats have a slower depreciation rate than automobiles.
In our niche of the boat world, we are talking about premium products with long warranties. We see original OEM warranty coverage to 5 or even 7 years. This also helps with resale. When you sell a 3 or 4 year old car it is usually out of warranty. We see many boat owners trade in the 4-6 year window not because the boat is nearing the end of its life cycle like a car would be but because they can benefit from the high percentage of original sale price available and the next owner can buy a used boat with more confidence because of original manufacturer warranty coverage.
If a new boat buyer puts 10-20% of the original purchase price down, it would be uncommon to be “Backward” at any point during the course of a 20 boat year loan.
Reality is that almost no buyers hold the same boat 20 years making monthly payments all of the way. If they do, they pay off the loan at some point well before the end of the original loan term. The longer term gives buyers flexibility. It is nice to have the ability to have a smaller minimum monthly payment that a longer term loan offers knowing that they can pay the loan down or off as they chose. You can pay more if you want, when you want. The interest rate is fixed. If rates go down, you can refinance.
Some people say financing “toys” is a poor decision. This is also highly inaccurate. It is true that if you have a loan you will be paying interest on that loan. However, interest rates are historically low. I’ve had plenty of customers with high credit scores and low debt to income scores as well as either a down payment or trade equity (lower loan to value) be offered fixed 4.99% 240 month loans. Many of these customers could write a check for the boat purchase. However, the savvy investors seeing returns of 10-15% in the market know they are “making” 5-10% by keeping their money working for them. If the market return ever changes, they can sell the investment and pay off the loan with no fees. The ability to write a check does not always make it the “best” solution to paying for a boat when inexpensive loans are compared with higher market returns.

[talltigeguy]

This financing battle is played out over and over here and on other boating related websites.

In 2008-9 a lot of people who financed their boats based on the thought that they will always appreciate in value went bankrupt, sometimes in large part because of the boat. Bankruptcy is a pretty stressful experience for some people, especially those who believe in paying their bills. For those with no conscience, it is pretty cool.

When I bought one particular boat, the owner wanted more than what I thought was market value. I couldn't figure out why he was so adamant about the price. Admittedly, I am a tightwad, but nobody else was banging down his door to buy the boat either. I finally caved, because it was close to me, and it was pretty much what I wanted. When our banks communicated the wire transfer, I figured it out. He owed exactly the amount I paid for the boat. Going any lower, and he would have lost money, and that was on a 5 year old boat that he bought new. That explains the stress I sensed from him. He was not in a good position, and was fortunate I came along and was willing to pay. (No, I did not finance the entire purchase price, and I did pay off the rest quickly).

[SONIC]

I love it when the spammers bring back in interesting thread.
I love hearing peoples motivations for how and why they financed or didnt.

My policy with toys is if I can't buy it today in cash without putting strain elsewhere financially, I can't afford it.
That being said if you can do that then a lot of times as Mike said it's a better financial decision to finance.
You can then invest the money you would have spent on the boat and make more than your interest thereby coming out ahead (fingers crossed your investments go as planned of course)

I see a lot of people looking at it like a lease though which bugs me, they only care about the monthly payment and disregard the size of the loan. This is all well and good until there's an economic downturn. It's no fun to be stuck with a 150K boat that you owe 130K on in a market where no one is buying 130K boats anymore. If things go south (and they inevitably will again) there will be a ton of people who no longer can afford that "cheap" monthly payment and will have to go bankrupt when people aren't buying high end boats. Enter a glut of boats and a crash in boat prices making it worse and worse because people will have to hock them for anything they can get to pay their bills.
On the plus side those of us who played it smart will be able to buy boats nice and cheap

[sandm]

I agree with a lot of sonic's logic but will say with the price of wakeboats over the last 5 years, pricing has pushed them out of the realm of a chunk of owners unable to ever afford to pay cash for them. the key to buying knowing you can't afford to pay off are keeping price and payments within reason.
housing shows the same thought process. people buying $400k houses "because that's what the bank qualified me for". lots left hanging out to dry back in '08/'09.
once the supply of cheap monies shuts off, boat builders are going to be hurtin... Tige introduced atx at the right time imo and if I were them, I'd start pushing that line even with lower margins as longer term, I think that's the market to be in.

[D&P Powell]

I love hearing peoples motivations for how and why they financed or didnt.

I agree Sonic. The discussions on this topic go around and around almost as much as what oil to use, or what boat cleaner one prefers. I will share my 1 cent (sandm says my opinion isn't worth 2 cents, LOL)...

When it comes to finances, we are all in different situations with money, credit, etc., etc. I wouldn't dare say anything negative about someone financing or only purchasing with cash? I have no desire to walk a mile in anyone elses shoes. If they are happy, who am I to say they did it all wrong? We don't carry balances on credit cards, we own (finance) 2 homes, 2 cars, and 1 toy. Everything we finance is currently under 4% APR. I never imagined I would finance a boat over 6 figures, but the joy it brings our family right now (and hopefully in the future) is worth every penny TO ME. Will we own it the length of the loan? Who knows? I believe planning for your future is extremely important (my 401k is in great shape), but I also believe in celebrating the present. Here's to spring right around the corner!

[sandm]

I will share my 1 cent (sandm says my opinion isn't worth 2 cents, LOL)...

your opinion isn't worth 1 cent after that last lot of iphone ripoffs you sold me.... took all my 401k to buy them and ended up with paperweights.....

good thoughts dave except the over100k boat financing. I can't bring myself to do it.... we really didn't want to spend 80k on our r23 but like you said the memories now are well worth it.

[BurnMac42]

What will make this conversation interesting is when the market actually does a real correction. We are in unprecedented times in that typically there is a market correction every 5-7 years. We are on a 10+ year streak. It will eventually happen and nobody can time the market perfectly. Just recognize that those "savvy" investors who put their money into the market vs paying cash for their boat won't be able to time the market perfectly. It bites people with that mindset every single time. Obviously not everyone loses, some peeps will have been lucky and timed the market correctly (they were lucky, not savvy) however a lot of others, going off that very soundbite of "invest it vs pay for it", will utilize that strategy at the peak of the market and get burned for it.

[D&P Powell]

What will make this conversation interesting is when the market actually does a real correction. We are in unprecedented times in that typically there is a market correction every 5-7 years. We are on a 10+ year streak. It will eventually happen and nobody can time the market perfectly. Just recognize that those "savvy" investors who put their money into the market vs paying cash for their boat won't be able to time the market perfectly. It bites people with that mindset every single time. Obviously not everyone loses, some peeps will have been lucky and timed the market correctly (they were lucky, not savvy) however a lot of others, going off that very soundbite of "invest it vs pay for it", will utilize that strategy at the peak of the market and get burned for it.

I don't necessarily disagree with you, but it appears you are looking at a boat purchase as an either/or, black/white situation. Your definition of "savvy" investors and mine may be completely different. Are you talking about someone who places a lot of money into a 401k with very conservative, low risk investments or are you talking about someone who literally treats the stock market like Las Vegas? Perhaps someone in between those two extremes? Is a person who chooses to pay cash for everything but doesn't invest any money in anything other than a savings account better off if the market does a "real correction"? What if someone has, just for arguments sake here, 500k in the market (be it 401k or otherwise)... would it be wise for them to pull some of that money out to "pay cash" for a boat? Here's my point in all of this... a boat is not a financial investment. Financing it, or paying cash - it doesn't matter... it's still not an investment. You want to minimize financial risks? I applaud you for it... may not want to buy a boat though.

[sandm]

even when the market corrected in the past or corrects in the future, boats are still going to sell but at a slower pace and lower price. imo what will determine your success or failure if you want to call it that will be those that want to sell during the correction. take dave above. if he doesn't sell and continues to pay the note, market doesn't really matter assuming all else stays the same(income and job stability). if he wants to sell, imo those that buy "smart" will be ok. if you shopped for a deal and came in below the average selling price I think you will have much less risk. if you bought last summer during the height and paid msrp or at the high end of the average price, you will likely be taking a larger loss.
just like any correction, all of this is only an issue if you want or need to sell. those that can and still make payments will be fine and assessing whether or not it was a good or bad decision would require looking at their entire financial picture.
there are a whole lot of moving parts to say that it's better to pay cash or finance. no way one person can say what another person doing is right or wrong, stupid or smart without knowing all the wheels and levers they have.
even to dave's point finance or cash doesn't matter. it can matter depending on boat pricing/value and what would have happened with the cash in your 401 and actual boat values. and again LOTS of moving wheels to that analysis that is different for each person.

in the end there will be winners and losers in both cash and payment camps.

[SONIC]

What will make this conversation interesting is when the market actually does a real correction. We are in unprecedented times in that typically there is a market correction every 5-7 years. We are on a 10+ year streak. It will eventually happen and nobody can time the market perfectly. Just recognize that those "savvy" investors who put their money into the market vs paying cash for their boat won't be able to time the market perfectly. It bites people with that mindset every single time. Obviously not everyone loses, some peeps will have been lucky and timed the market correctly (they were lucky, not savvy) however a lot of others, going off that very soundbite of "invest it vs pay for it", will utilize that strategy at the peak of the market and get burned for it.

I think that depends on the investor and their decisions.
Someone who puts the boat money into high risk stocks hoping to make it rich, vs someone who invests in moderate gain/low risk investments are very different.
Correction or no correction you can count on the market on the safe side making moderate gains over the long term. If you can't/won't then put your money in a mattress lol.

I find all of this so interesting because there are so many moving parts and because most everyone I know doesn't take any of this even into consideration, it's just a "Hell, I can make that payment lets do it!"

If you read my posts here from a few years back my sentiment was "that's a crazy amount of money for a boat and I just won't spend that on a boat". Here we are a few years later and I have one of those stupid expensive boats and am perfectly happy spending the money on it, mostly because I know that I'm not that stuck with it. At worst I can hock it at any point for a loss but it won't be a huge loss in the scheme of things so while it's not an investment I don't see it as a total money waste either.

If things went straight to hell and I had to unload it today at a large loss it would be a lesson in humility but not a financial strain, I think that's the key to making a smart purchase and actually being able to afford it vs a stupid decision just because you want it.

[cucv]

I've been a cash only toy guy, and I love my toys.
I had a very humble upbringing, dad (immigrant) worked as a factory worker, mom was a house wife. They always lived within their means, bought quality but in cash minus their mortgage. When my dad was in his mid/late 40s the owner of the company promoted him to an office job. It was then he realized he needed to save for retirement. Sound home finance practices and saving for retirement have always been open conversation in our house.
I hear a lot about not wanting to miss out on the memories of owning a boat or newer boat. We sailed growing up, I always wanted a power boat and ultimately bought my own. My mom often feels a bit of regret and looks for reassure that our upbringing was ok that we never went to Disney growing up and ski trips were day trips or packing 2x families in one hotel room. I always remind her that we spent literally every day possible at the ocean, on a lake or in the mountains because she was a stay at home mom.
The new boat prices have me a bit stumped on an upgrade with my cash only philosophy. My 22v is a solid boat. If I sold it for $25k and add $25k cash that i have, I'm not seeing that i get much for the extra added cash.
If I applied the 50/30/20 rule I can handle a new boat payment in the 30% but not sure comfortable with that from a financial emergency when emergency funds are needed as they typically only are calculated on the 50%.


2005 Tige 22v