Imagine yourself admiring a sleek 45-foot cruiser docked at the marina. Priced at $1.2 million, buying it outright may not be feasible without financing. If you choose to finance, you can spread out this large expense over time, similar to a mortgage for a similarly valued home. For example, with a 20-year loan term and a 5% interest rate, your monthly payments would be around $7,900, depending on specific loan terms such as down payment and creditworthiness.
Pros of Financing: Access and Enjoyment
By financing, you can have immediate access to the boating lifestyle. This might involve leisurely trips along the coast or weekend getaways with family—activities that could significantly enhance your quality of life. Financing turns an otherwise unreachable dream into a tangible reality, allowing you to enjoy the benefits of boat ownership while paying for it over time. Imagine a scenario where your family and friends are relaxing on the boat’s deck during a summer sunset cruise. These experiences might justify the monthly payments for some.
Cons of Financing: Interest Costs and Budget Impact
When buying a boat, it’s important to consider the financial implications. The cost of borrowing money, such as the interest paid over the loan’s term, can significantly increase the total cost of the boat. For example, over 20 years, you might end up paying over $700,000 in interest alone. This substantially raises the true cost of the boat. Additionally, if you sell the boat before the loan term ends, you might find that the market value doesn’t cover what you still owe, especially if the economic conditions are unfavorable.
If the economy declines, people tend to cut back on recreational expenses first. This can impact the resale value and market demand for boats, making it harder to find a buyer. For instance, during the 2008 financial crisis, the market value of luxury items, including boats, decreased significantly. If you purchased a boat during a strong market and tried to sell it during a downturn, it could take a year or even longer to find a buyer even if you are willing to take a loss.
Maintenance Costs
Another important factor to consider is maintenance. Boats need regular upkeep to maintain their value and functionality. This includes replacing parts, paying for annual service fees, dockage, insurance, and winter storage. Depending on the size and usage of the boat, these costs can range from a few thousand dollars to as much as $30,000 per year. If the boat is not properly maintained, it can depreciate quickly, which will affect its potential resale value.
Compared with Real Estate
When compared to financing a home, boats generally depreciate quickly over time, whereas homes can appreciate. For instance, if you financed a $1.2 million home 10 years ago, you might find it valued at $1.8 million today, assuming a favorable real estate market. In contrast, a boat may have depreciated by as much as 20% to 30%, making its resale and covering the outstanding loan, a challenge even if economic conditions are optimal.
Financial Preparedness
Given these factors, you should ask yourself if you are financially prepared to own a boat if you can’t pay cash for at least a significant portion. Can your budget accommodate not just the monthly payments, but also the additional costs of ownership? Do you have a plan in place for periods when the boat might not hold its value as well, or when selling might take longer than anticipated? By considering these questions, you will be better equipped to determine whether financing a boat aligns with your long-term financial goals.
Boat ownership is an investment that is not likely to show a return. It’s more like buying a lottery ticket rather than a savings bond. For many, boat ownership is a status symbol. They desire a boat to make a statement to their friends and associates. Let’s make it perfectly clear: “Boats are not a good investment.” After you pay for the boat, interest, mooring costs, maintenance, the inevitable repair bills, and depreciation, a boat will cost you at least twice what you pay for it.
There are frequent cases of people purchasing boats, especially when financing them, and then having to sell them at a significant loss. Sometimes, it’s an unexpected repair, like an engine rebuild at $100,000. Sometimes, it’s a personal financial issue like an investment gone bad or a sudden downturn in the stock market. A sudden illness can lead to financial hardships that stress budgets and make the boat payment difficult, if not impossible, to cover.
Unfortunately, in our nine years of boating, we’ve seen all of these issues arise multiple times. Before you finance a boat, please make sure that it is disposable income you are using, not your regular daily budget.
Will or did you finance your boat?
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