Do many owners borrow to buy a boat?

[Irish Rover]

I regularly visit Trawler Forum where most of the contributors are US based and I regularly see threads and comments about financing boat purchases. Personally I wouldn't dream of borrowing to buy a boat and if I couldn't afford a boat I'd do without. On the other hand, in my younger days, I regularly borrowed to buy cars whose price/specification were well in excess of my basic needs. I'm curious what others think about borrowing to finance a boat?

 

[Skylark]

.......... if I couldn't afford a boat I'd do without.

An important guiding principle valid for life, taught by many parents to kids of my generation. The sole exception being a mortgage to buy a house.

 

[Garold]

Sometimes, sometimes not.

We’ve used Beneteau finance three times on new boats.

It’s usually been about 3-4% above base rates so similar to commercial mortgage finance but more than say residential home mortgage finance.

The finance has been useful because it’s secured only against the boat so in a way it’s like off-balance sheet funding so it never held us up with other commercial borrowings on property etc. Usually however, we have used it as a type of bridging finance whilst we rearranged other assets to free up the money to pay it off. The finance also has no penanlty for paying off early so it works for this purpose. Other commercial finance often has significant set up fees and early termination penalties.

Even though the finance term was always over 10 or 15 years we’ve never had it for more than a year or two.

I suspect that quite a few business people also use finance for a boat and use available cash elsewhere. It doesn’t make sense to have boat if it stops you earning elsewhere and sometimes it’s difficult to raise money for business trading or assets.

Beneteau finance have always been easy to deal with and very fair with their contract terms with no hidden nonsense in the loan agreements. This is very different from commercial lenders for business and property where I’ve learned over the years that it will always cost more than anticipated at some point.

Garold

Ps. I understand the point made above about buying things only when you have the money, but I think that depends upon your own personal circumstances and ability to manage financial commitments.

 

[Sandy]

Personally, I have always bought a boat with cash.

 

[xyachtdave]

Why wouldn't you if you can afford the repayments and happy to add the loan interest to your overall purchase costs?

If your £50k boat costs you £57k with interest but you get it 10 years sooner....that's a lot of fun you could have missed out on while you were saving up for the sake of £58 a month. I spend more than that a month buying coffees for my chaps at work.

I'm not suggesting you can't get afloat for less than £50k either....you can certainly spend a lot less and a lot more!

 

[Resolution]

As an ex-banker and sometime dealer in yachts I have some experience of finance for asset purchases. Personal finance will always be dependant on one's personal circumstances, but here are some of my suggested guidelines:
- Always know your source of repayment right from the outset, do not just hope that your boss will give you a raise etc
- Gearing up to buy an appreciating asset (eg a house in normal times) makes sense as an investment.
- Gearing up to buy a depreciating asset (eg a car or a yacht) is less sensible and should require other reasons.
- Best of these reasons would be strong excess cash flow (ie personal income greater than personal expenses) enough to service the debt, both interest and capital repayments.

From my time as a dealer, the happiest buyers were those who could afford a cash purchase. Owning a boat is expensive enough in berthing and maintenance costs and adding debt service to these was an additional burden.

 

[maby]

We have always paid cash. Our most recent purchase was partially financed by selling other assets and that transaction took a bit longer than we had anticipated, leaving us needing a bridging loan for a few months - but the purchase was still asset backed - we never owed money that we didn't have.

 

[dunedin]

The point about intelligent tactical use of finance is well made.

But the clue to the fact that different people have different approaches may be in the comment ....

We’ve used Beneteau finance three times on new boats.

Serial new boat purchases, particularly from a single brand, seems to be more common in the mobo community - but I suspect far less common in the sailing boat community. Many tend to buy second hand and keep for long periods - and or buy new perhaps once or twice in a lifetime.

 

[Irish Rover]

buying coffees for my chaps at work.

I LOVE it :love_heart::love-struck:

 

[RichardS]

I'm always open to considering finance deals, but it solely depends upon exactly what the deal is.

My boat was bought with cash but there were no finance deals on offer to actually be considered. Our two latest cars were bought under finance deals, one has 3 years interest-free finance so I borrowed the maximum permitted under the deal so that amount is now sitting in a flexible account earning 6.9% pa, and the other is under a finance deal which has 5.9% interest but came with £1000 deposit contribution, free servicing for 2 years, an extended manufacturers guarantee, free international AA coverage etc. so we took out the minimum loan and paid it off in full within a week of buying the car, which cost around £100 cancellation fee, leaving us with a net profit of around £2000.

Richard

 

[Uricanejack]

I am sure lots of people do. It’s a personal choice. I choose to sail an older boat I paid for up front. While I borrowed money for a house and a car.
When the house is paid for?
Why not?
Boats are certainly not an investment. In fact buying a boat is stupid.
But sailing my own boat. I enjoy it. I didn’t by the boat as an investment. I decided I could afford to spend X spent on a boat. Convinced myself to spend X + Y on a boat.
A smarter person might have used the money to pay down the mortgage on the house. Or bought a fancier car.

So it’s a choice I could afford to spend X up front.
Or x every month.
Nither of which were wise.

 

[KellysEye]

I had a mortgage for two houses after that I paid cash for everything, houses, cars, TVs and yacht etc. What surprises me is all car advertising shows the Hire Purchase cost and never the price.

 

[Uricanejack]

So does the advertised prices at any boat show I’ve been to.

 

[Stemar]

I took out a loan to buy Jissel and we felt the pinch to do it, just as we'd felt the pinch when we'd had to take a loan for a car, but the car was essential and the boat has brought us pleasure for far longer than the repayments lasted. Even while paying off the loan, I took a degree of smug pleasure in knowing we were running two cars and a boat on a budget that most would consider just about adequate for a decent second hand car.

This was at a time when, if properly maintained, boats pretty much kept their value after the first couple of years. I'd quite like to upgrade now, as Jissel is small and we aren't as agile as we once were, but I wouldn't take a loan to do it, and I'm leery of using our limited savings in case of an unexpected need that our pensions wouldn't cover.

 

[Resolution]

so that amount is now sitting in a flexible account earning 6.9% pa,

Richard

Richard, do tell us where you can get 6.9% pa. Presumably this is a sterling return?
Peter

 

[RichardS]

Richard, do tell us where you can get 6.9% pa. Presumably this is a sterling return?
Peter

Yes, wholly UK-based sterling returns: https://www.assetzcapital.co.uk/

Richard

 

[pvb]

Borrowing to buy a boat isn't a sin. If it gets you into the boat earlier than would otherwise be the case, why not go for it? I financed my first 2 sailboats, back in the 70s. I borrowed to buy a Merc in 1980. I remortgaged my house to buy my first Ferrari in 1985. But after that, it was all outright cash.

 

[RupertW]

I did borrow the money off my Dad for a couple of years to buy the second half of the boat I shared with him as being co-owners wasn't working out, but otherwise I've always had boats and cars (never new) that fitted in with the cash I had at the time. Nobody has to wait years for a boat or car if they don't borrow, but they may have to get a smaller, older version at first and then (with no interest to pay or much depreciation) they are quids in for boat 2, car 2 and onwards.

 

[Tranona]

What surprises me is all car advertising shows the Hire Purchase cost and never the price.

Once again you are way out of date. Virtually nobody uses hire purchase to buy new cars nowadays. The figures you see in advertisements are monthly payments on a personal purchase contract which is a very different animal and more like a long term rental agreement.

The figure is shown in adverts because this is the way the majority of new cars are sold.

 

[Tranona]

I bought my first high cost boat in 2001 by increasing the size of the mortgage on my house. The mortgage was interest only and still had about 15 years to run. However the circumstances were rather different because it was a charter boat and I financed 50% of it. The annual interest payments were equal to between 2-3 weeks charter, so effectively by using the boat we got "free" holidays.

Boat did 7 seasons chartering, 2 seasons private use then sailed back to UK. Used for a further 3 years then part exchanged against a new boat for more than it originally cost (as usual ignoring all the running costs and replacements etc). Mortgage had already been cleared when I retired in 2007.

So, it worked for me, but you have to think long term and of course that is risky. I know others who did the same thing and came unstuck when their circumstances changed. So it requires a secure source of income, secure other assets and a slice of luck.