240 Months??!!

[arew~SX230]

For a cabin cruiser with a galley, bed, and head, the tax deduction for the interest might make it attractive, but on a run about, no way.

And by the way a grill, a porta-pot, and a sleeping bag won't cut it for the tax deduction

 

[Ronnie]

I have a degree in finance, among others, so I understand time value of money concepts and that there is such a thing as "good debt" but I'm still not a fan of debt at all. If I could comfortably pay off my mortgage early I would. My real estate agent said that if I make one extra payment a year on a 30 year mortgage it will be paid off 8 years early. He tells this to all of his customers and he has been in the industry for over 20 years. In that time he only knows of two of his customers who have ever even tried to do it. I think the same is true for long term boat loans. Many people take out a long term loan with a an attractive low monthly payment and plans to pay it off early, they don't always think about the total financed cost but the out the door cost instead. The new boat feeling disappears sooner than expected, especially during the off season, and suddenly the plan of paying extra every month to pay it off early goes out the window. Before they know it, they have been paying for 10 years on a 15 year loan and don't have enough reason or money to pay it off early anymore.

All four of the jet boats I've had so far, including two Yamaha's, have been used. The big advantages being that I didn't have to take the big depreciation hit and the purchase cost was much lower than if I bought a new boat. The big disadvantage, other than not having the latest and greatest features, is that the interest rate on used boats is much higher than on new boats. That is Yamaha only offer 2.99% on new boats. Anyway, I financed a seadoo and my current Yamaha through Essex Credit which is actually backed or under written by bank of the west. The interest rate for both loans was close to 6%. I used the high rate to motivate me to pay the loans off early and it worked both times. I paid the seadoo off within 6 months and the Yamaha off within 2 years. I cant say that the boat is any different but it sure is nice to know that I don't need to make anymore payments on it which makes every outing on it for me better.

I would love to have a new top of the line 242 Ls but the msrp and dislike of debt keep me from even looking at them. Does my boat have an articulating keel, connext system, quiet ride tech, or electronic throttles, no, I wish it did but but I do have a pink slip/certificate of title which in my mind trumps all of the extra features combined. By the way, as I recall from my loans with Essex credit the term is usually determined by the amount borrowed. Essex won't even approve a loan for under $10k, I had a 15 year loan term on $40k of debt which I refinanced into a 10 year loan term after I paid the principle down a little more. With the new 242 Ls flag ship retailing for over $70k I'd bet that the 20 to 30 year loans terms are what's offered by default depending on the lender. On a positive note you get a lot of boat for the money with yamaha. Having seen may $100k+ dedicated wake boarding boats (like master crafts) , in and out of the water, $70K may get you a lower model master craft which could be a 19' or 20 ' boat.

 

[sho'nuff]

I'm going to make an argument for the other side of the fence, i.e., that financing for 15+ years on an item like this makes sense. At least for some people. And provided the interest rate is low enough and the buyer will hold on to the boat for sufficient time.

Like most cars, boats are depreciating assets. Regardless of age, they generally do not increase in value, and almost always significantly decrease in value. That being said - while I am not a proponent of debt - there is an argument to be made that paying cash for a boat or paying it off early merely accelerate the monetary loss on the boat, and forego compound returns that could have been earned with that same money. For example:

Setting - Bob has $50,000 of "extra cash" in the bank and wants to buy a boat. Consider the following three scenarios.

Example 1: Bob buys a $50,000 boat, puts 0% down, and finances it for 15 years at 2.99% interest. His payment is ~$345 a month, at the outset of which ~$220 goes to principal, and $124 goes to interest. The total interest paid over the life of the loan is ~$12,000. He takes the $50,000 he has in the bank and invests it in mutual funds and earns a yearly return of 6% on his investment over that same 15 years (compounding yearly). Bob adds no additional funds to that $50,000 investment. At the end of that term, Bob's 50,0000 investment is now worth $119,927. Subtracting the cost of the boat ($50,000) and the interest payments on the 15 year loan ($12000), it can be seen that Bob is just under $70,000 AHEAD after that 15 year term. And that assumes Bob's boat is worth $0 at the end of the 15 year term.

Example 2: Bob buys the same $50,000 boat for cash. At the end of the 15 years, Bob has not only lost the $50,000 he paid for his boat (again assuming the boat is worth nothing at the end of the 15 years), he has ALSO lost the $70,000 in returns he would have seen had he made the $50,000 investment and financed the boat at 2.99% over the 15 years.

Example 3 - Same as example 2, but instead of investing the whole $50,000 bob invests $8,000 at 6% return compounding annually, and again adds no additional cash to the investment after it is made. At the end of the 15 year term that $8,000 investment is worth $just over $19,000. In this case, Bob's investment completely offsets the interest on the loan payment, he retains $42,000 at the time of purchase to use how he pleases, AND he retains his invested principal ($8,000). While he loses the $50k in boat payments, he has effectively paid no interest over the life of the loan on the boat. The biggest loss, however, is that in this example Bob has also foregone the $70,000 in returns that he would have seen had he invested the whole $50,000

Now tell me - in which of the above scenarios is Bob smarter?

IMO - the answer entirely depends on Bob's finances. If Bob is financially secure enough to invest the 50k, leave it alone for the 15 year term, and meet all of his other financial obligations, he would be far better served by example 1 than examples 2 or 3. Indeed in that scenario, the only time it makes sense for Bob to pay for the boat outright (or pay it off early) is when the interest rate on the boat exceeds the rate of return on the investment.

FWIW - the above is also true with regard to other types of loans, and particularly mortgages and home equity lines of credit. Indeed the interest on Mortgages and HELOCs is tax deductible, meaning that the borrower will obtain a tax credit that is typically about 33% of the amount of yearly interest paid. In other words, if the APR on a mortgage is 5%, after the federal tax credit the effective interest rate is really only ~ 3.4%. Which in most cases would mean that it would be smarter to invest extra money in the stock market than to use it to pay off a mortgage early.

Just food for thought. There is a good reason that compounding returns have been said to be one of the most powerful forces in the world.

And for the record - I hate debt as much as most financial advisors. BUT - in the right circumstances debt can be used as leverage to obtain greater returns. Most wealthy people understand that, and have used that principal to great advantage.

 

[Nick Hughes]

I'm going to make an argument for the other side of the fence, i.e., that financing for 15+ years on an item like this makes sense. At least for some people. And provided the interest rate is low enough and the buyer will hold on to the boat for sufficient time.

Like most cars, boats are depreciating assets. Regardless of age, they generally do not increase in value, and almost always significantly decrease in value. That being said - while I am not a proponent of debt - there is an argument to be made that paying cash for a boat or paying it off early merely accelerate the monetary loss on the boat, and forego compound returns that could have been earned with that same money. For example:

Setting - Bob has $50,000 of "extra cash" in the bank and wants to buy a boat. Consider the following three scenarios.

Example 1: Bob buys a $50,000 boat, puts 0% down, and finances it for 15 years at 2.99% interest. His payment is ~$345 a month, at the outset of which ~$220 goes to principal, and $124 goes to interest. The total interest paid over the life of the loan is ~$12,000. He takes the $50,000 he has in the bank and invests it in mutual funds and earns a yearly return of 6% on his investment over that same 15 years (compounding yearly). Bob adds no additional funds to that $50,000 investment. At the end of that term, Bob's 50,0000 investment is now worth $119,927. Subtracting the cost of the boat ($50,000) and the interest payments on the 15 year loan ($12000), it can be seen that Bob is just under $70,000 AHEAD after that 15 year term. And that assumes Bob's boat is worth $0 at the end of the 15 year term.

Example 2: Bob buys the same $50,000 boat for cash. At the end of the 15 years, Bob has not only lost the $50,000 he paid for his boat (again assuming the boat is worth nothing at the end of the 15 years), he has ALSO lost the $70,000 in returns he would have seen had he made the $50,000 investment and financed the boat at 2.99% over the 15 years.

Example 3 - Same as example 2, but instead of investing the whole $50,000 bob invests $8,000 at 6% return compounding annually, and again adds no additional cash to the investment after it is made. At the end of the 15 year term that $8,000 investment is worth $just over $19,000. In this case, Bob's investment completely offsets the interest on the loan payment, he retains $45,000 at the time of purchase to use how he pleases, AND he retains his invested principal ($8,000). While he loses the $50k in boat payments, he has effectively paid no interest over the life of the loan on the boat. The biggest loss, however, is that in this example Bob has also foregone the $70,000 in returns that he would have seen had he invested the whole $50,000

Now tell me - in which of the above scenarios is Bob smarter?

IMO - the answer entirely depends on Bob's finances. If Bob is financially secure enough to invest the 50k, leave it alone for the 15 year term, and meet all of his other financial obligations, he would be far better served by example 1 than examples 2 or 3. Indeed in that scenario, the only time it makes sense for Bob to pay for the boat outright (or pay it off early) is when the interest rate on the boat exceeds the rate of return on the investment.

FWIW - the above is also true with regard to other types of loans, and particularly mortgages and home equity lines of credit. Indeed the interest on Mortgages and HELOCs is tax deductible, meaning that the borrower will obtain a tax credit that is typically about 33% of the amount of yearly interest paid. In other words, if the APR on a mortgage is 5%, after the federal tax credit the effective interest rate is really only ~ 3.4%. Which in most cases would mean that it would be smarter to invest extra money in the stock market than to use it to pay off a mortgage early.

Just food for thought. There is a good reason that compounding returns have been said to be one of the most powerful forces in the world.

I am example 1, except in a better spot because I wont be going the entire 15 years, 5 max, most likely 2-3. Some people have an aversion to debt in general. Some believe because you don't know about the unknown. I don't think that way. I may lose my job, i may die, i live in the now, and in this case, investment of my cash is better than paying cash. To each his own..

 

[sho'nuff]

I am example 1, except in a better spot because I wont be going the entire 15 years, 5 max, most likely 2-3. Some people have an aversion to debt in general. Some believe because you don't know about the unknown. I don't think that way. I may lose my job, i may die, i live in the now, and in this case, investment of my cash is better than paying cash. To each his own..

Me too. But in example 1 the only risk is that the value of the investment goes down. While that is a possibility, it is not a certainty. Paying off a boat only accelerates the depreciation loss - i.e., a loss that is inevitable.

 

[BigN8]

Today ... this is reality - Wall St. tumbles as investors run to safety

Can't look at it short term. Example 1 is an average 6% return which is very much the case. Sure, my investment portfolio is taking a beating right now, but it also out performed the prior 3 years. That's how you get the average. They key is invest and forget about it. Don't sweat the bumps in the market.

 

[sho'nuff]

Can't look at it short term. Example 1 is an average 6% return which is very much the case. Sure, my investment portfolio is taking a beating right now, but it also out performed the prior 3 years. That's how you get the average. They key is invest and forget about it. Don't sweat the bumps in the market.

QFT. Its almost time to buy!

FWIW - I bought big back in 2009-2010, when stocks were way down. So far those investments are up ~30%-40%.

 

[scokill]

Today ... this is reality - Wall St. tumbles as investors run to safety

If you play for today you have already lost.....

 

[Nick Hughes]

I'm not a day trader, long term investor.

 

[robert843]

I'm going to make an argument for the other side of the fence, i.e., that financing for 15+ years on an item like this makes sense. At least for some people. And provided the interest rate is low enough and the buyer will hold on to the boat for sufficient time.

Like most cars, boats are depreciating assets. Regardless of age, they generally do not increase in value, and almost always significantly decrease in value. That being said - while I am not a proponent of debt - there is an argument to be made that paying cash for a boat or paying it off early merely accelerate the monetary loss on the boat, and forego compound returns that could have been earned with that same money. For example:

Setting - Bob has $50,000 of "extra cash" in the bank and wants to buy a boat. Consider the following three scenarios.

Example 1: Bob buys a $50,000 boat, puts 0% down, and finances it for 15 years at 2.99% interest. His payment is ~$345 a month, at the outset of which ~$220 goes to principal, and $124 goes to interest. The total interest paid over the life of the loan is ~$12,000. He takes the $50,000 he has in the bank and invests it in mutual funds and earns a yearly return of 6% on his investment over that same 15 years (compounding yearly). Bob adds no additional funds to that $50,000 investment. At the end of that term, Bob's 50,0000 investment is now worth $119,927. Subtracting the cost of the boat ($50,000) and the interest payments on the 15 year loan ($12000), it can be seen that Bob is just under $70,000 AHEAD after that 15 year term. And that assumes Bob's boat is worth $0 at the end of the 15 year term.

Example 2: Bob buys the same $50,000 boat for cash. At the end of the 15 years, Bob has not only lost the $50,000 he paid for his boat (again assuming the boat is worth nothing at the end of the 15 years), he has ALSO lost the $70,000 in returns he would have seen had he made the $50,000 investment and financed the boat at 2.99% over the 15 years.

Example 3 - Same as example 2, but instead of investing the whole $50,000 bob invests $8,000 at 6% return compounding annually, and again adds no additional cash to the investment after it is made. At the end of the 15 year term that $8,000 investment is worth $just over $19,000. In this case, Bob's investment completely offsets the interest on the loan payment, he retains $42,000 at the time of purchase to use how he pleases, AND he retains his invested principal ($8,000). While he loses the $50k in boat payments, he has effectively paid no interest over the life of the loan on the boat. The biggest loss, however, is that in this example Bob has also foregone the $70,000 in returns that he would have seen had he invested the whole $50,000

Now tell me - in which of the above scenarios is Bob smarter?

IMO - the answer entirely depends on Bob's finances. If Bob is financially secure enough to invest the 50k, leave it alone for the 15 year term, and meet all of his other financial obligations, he would be far better served by example 1 than examples 2 or 3. Indeed in that scenario, the only time it makes sense for Bob to pay for the boat outright (or pay it off early) is when the interest rate on the boat exceeds the rate of return on the investment.

FWIW - the above is also true with regard to other types of loans, and particularly mortgages and home equity lines of credit. Indeed the interest on Mortgages and HELOCs is tax deductible, meaning that the borrower will obtain a tax credit that is typically about 33% of the amount of yearly interest paid. In other words, if the APR on a mortgage is 5%, after the federal tax credit the effective interest rate is really only ~ 3.4%. Which in most cases would mean that it would be smarter to invest extra money in the stock market than to use it to pay off a mortgage early.

Just food for thought. There is a good reason that compounding returns have been said to be one of the most powerful forces in the world.

And for the record - I hate debt as much as most financial advisors. BUT - in the right circumstances debt can be used as leverage to obtain greater returns. Most wealthy people understand that, and have used that principal to great advantage.

Yes number games can I play too!!!! Ok let me give you my examples and mine will be based on real numbers not the made up wall street ones they want you to see. I do a lot of trading I own multiple funds and many stocks over a few accounts. I to have had a great run in the current market conditions over the last several years well up until this year lol. Best being buying Ford for $1.52 a share and selling over $11 sorry don't remember the exact number its been a few years. For arguments sake lets use your 15 year average because the market has done a lot in the last 15 years and I did happen to sell a 18 year old fund this year and it was the only sale I made from the Fidelity account so its on my 1099-B which I have a picture of below for reference. If you bought a mutual fund 15-20 years ago today you actually took a beating but if you look at the return rates you would think wow I should have made money but that's not true. Reason is the way they report the calculations on return of investment they count the loss the same as the increases which is not realist. Below I will paste a link explaining this further. That being said a true 6% return is not realistic at least over the last 15-20 years

My example is below.

You purchase a $50,000 cash. You then over the next 15 years save $12,000 in cash that you saved in interest at the end and you have a boat and $12,000 this is a pretty sound plan here.


#2
You finance the boat and put $50,000 in funds. Lets say you get a realistic moderate return of 2.5 percent which is a semi realist number but not really over the last 15-20. years. Even in this situation the stock plan wins as your gains are in the $22,000 range and your interest is $12,000 so you come out $10,000 up. but option three shows that this is a sever risk and must be considered showing option one is the safest bet.

#3

You finance a boat $50,000 and put $50,000 in a fund. 15 years later you have paid $62,000 for a boat and you have $25,000 in a fund that shows a 10 year return rate of 4% hmmm how does that happen because the numbers are not real. If you don't believe my look at the pic and the link below and you will understand how this happens. this is a real fidelity fund the fund still traded right now right now the Symbol is there. in this case you show a $37,000 realized loss or better yet a boat that you paid $87,000 for instead of $50,000

http://www.foxbusiness.com/features/2013/08/12/average-return-wall-streets-dirty-little-secret.html

 

[robert843]

Here is a good number example. $10,000 gains 10% this month now $11,000 loses 10% next month now $9900 gains 10% the next now $10,890 now loses 9% the next month now $9909.90. This example would show a return rate of +1% by Wall street standards but some how you lost money and this doesn't include fees charged to have that fund managed. Another great way anyone can see this is go look at your 401k and it will show you the annual return rate and your cost basis I bet you will be floored when you see it. Some of you will probably be mad to see you have a positive return rate with little to no excess money beyond your contributions.

 

[Ronnie]

A lot of theoretical examples being thrown around on this thread lately. Very interesting if you can keep up. What made me give up on buying a new 242 in 2012 was the total financed cost. Sure a low monthly payment sounds good but if you stick it out and pay it for the entire loan term the interest amount alone is staggering after combining it with the the principle I walked out of the dealership and never looked back.

Not sure why $50k and 15 year terms are being discussed since the msrps on a new 240sx is $51k and on a top of the line 242 Ls it is $72k and the thread talks about 240 months not 180. With no money down at 3% interest here is what I came up with for the total financed cost. Note this excludes tax, registration, normal operating costs and of course mods.

With fugues like this I wish boat stood for break out (just) another thousand.

240 sx financed cost over 20 years at 3% on a $51k loan. $283 per month x 240 months =

Top of the line financed cost at 3% for 20 years on $72k principle loan amount. $400 per month x 240 months =


To each his or her own but even if my income doubled tomorrow I could not justify buying a new 242 Ls let alone financing it.

$72k msrp for a boat that just 6 years ago retailed for $49k! Come on mother Yamaha, at least share what ever it is you are smoking with your potential customers before your annual product launch.

 

[robert843]

@Ronnie when I was typing mine up I almost went into the 240 month deal but I knew it would make the numbers worse lol! I agree on the pricing. My boat budget I don't think will ever be over $50k I just can not fathom the idea of spending more then that on a boat. There is a boat out there I want really bad (not a Yamaha sorry guys)but the model was just released last year and its over $70k I'm waiting a few years till some used ones start hitting the market under the $50k range before I upgrade.

 

[MattFX4]

Yeah, my head is hurting after reading all these threads, and I'm a CPA haha. Bottom line is do whatever makes most sense for you, and what you're comfortable with. Hell who knows, you may get hit by a bus tomorrow. All the fun you've had on your boat financed or not would of been well worth it then!

 

[robert843]

Yeah, my head is hurting after reading all these threads, and I'm a CPA haha. Bottom line is do whatever makes most sense for you, and what you're comfortable with. Hell who knows, you may get hit by a bus tomorrow. All the fun you've had on your boat financed or not would of been well worth it then!

Ok just went on facespace for the first time in a while and a friend of mine 33 years old in great shape just died. He had been complaining of stomach aches for a week and collapsed today. They took him to the hospital and he had a liver infection that was to far along and there was nothing they could do he died. I take it all back on it make all the memories however you have to.

 

[MattFX4]

Ok just went on facespace for the first time in a while and a friend of mine 33 years old in great shape just died. He had been complaining of stomach aches for a week and collapsed today. They took him to the hospital and he had a liver infection that was to far along and there was nothing they could do he died. I take it all back on it make all the memories however you have to.

Oh man sounds terrible.

 

[Freezer41]

I financed 100% for 2.99% for 60, 180 amortized. Could of paid cash, but no reason to, when you can make more than 2.99% in the market. Plan to pay off before the 60-180 rate hike, it becomes a near wash by then.

That's what I was thinking but my portfolio is down 19% lol

 

[Ronnie]

@robert843 , I'm sorry about your friend dying.

I can't argue with living like you were dying but I still fear outliving my money. I was a grocery store bagger in high school and vividly remember an older retired couple coming in every month right around social security check time to buy a lot cat food for their consumption not for cats. On the opposite end I was a bank teller in college and had homeless customers making $10 withdrawals from savings accounts with over $100k balances. That said, I honestly have just as much fun on my current boat which is my fourth as I did in my first jet boat a 15 footer.

When it comes down to it for me, it's the people I'm with that make boating fun that make the memories I cherish and all the trouble and expense worth it not how big, loaded or expensive the boat is so I don't have a reason to break the bank or put a cloud of debt over myself for 20 years. It helps for me to keep this in mind whenever I see another boat I'd like to have. Another member here said it best, "if you are floating you are boating".

My next financial challenge will be getting my son through college without either of us going into much debt. I paid my $100k (over $150k after deferrals, forebearance and unpaid interest capitalization) student loan off years ago, about 23 years early but that is another story.

 

[billyb]

It's interesting how the board is almost split on the financing.

I have been paying the extra payment on my house since we built it. It will be paid off by the time my oldest drives. On the other hand, I did take out a 15 year loan on my boat (2.99%). My thought process was I could always refinance the house at 2-6% and payoff the boat while still getting the tax benefit once the house was done.

The crazy thing is...your home loan is the CHEAPEST loan you will ever get. So while paying it off is a huge sense of relief, it may not be the smartest thing one can do.

 

[SCSTWG]

Some interesting points here. My perspective is "per use" cost. Living in the Syracuse, New York area, summer is very short. I realistically get out on the boat about 12-15 times per season. That makes the cost of ownership VERY high on a "per use" basis and is the primary reason that I purchased used and do not regret it. Even though I purchased used, my per use cost is still crazy high because in addition to capital cost and depreciation, you have to take into account winter and summer storage, maintenance, insurance, fuel, food, etc. It is very easy to talk yourself out of a boat and virtually all of us are making a bad investment having one. It is similar to taking a vacation or joining a country club in that you own a boat to increase your quality of life, not because it makes financial sense.