Interest Rate on Loan - Paid Off Boat

[petrey10]

there aren't many investment that are going to be fixed rate at 15-20 percent... sure you might have a good year but you could have a bad year of -20%... its gamble just like anything... me personally being a banker I would try to find the best rate I can find that is FIXED and make sure I can make the payment (live within your means)...

a boat is a bad INVESTMENT... that's why I would buy used... but the fun you have on a boat makes up for the bad investment

I choose not to gamble more than I have to so I go with the loan after a decent down payment. You know what you are getting yourself into and don't have ALL your cash tied up in case of emergency or whatever may come up.

[Pro-Fab]

I dont think a boat is a bad investment. The utility rendered from the use of your boat may not be a monetary return, but what a lot of people forget is that life is not about money and you cant take it to the grave with you. IMO any type of toy that allows you to spend time with your family and create smiles, laughter, intense fun, adrenaline, and bonding moments is priceless. in recent markets people have said do not purchase a house as an investment, due to the volitile economy.

Many people bought before the market crash and are upside down double the monetary value of their home. But when they bought the house they were willing to pay the money each month to purchase the house. unless they have taken a large reduction in pay why would it worry them to keep paying the amount for their home? The value of something is what someone is willing to pay for it.

People put too much emphasison money and not enough on living life. Remember money is just money and can be made any time any day. There is only one chance to make memories for each moment you live.

Original poster does have a great point thinking from an economic stand point. Why tie up the money when you can put the money directly into a bond, stock or other security and effectively lower the overall cost of your boat. What my wife and I did was, went in halves with my mom. She loves the water, we love the water. We arent going to have a falling out with my mother and we all gain the same utility from the boat and effectively lower our payments by half ($200 per month for 5 years) we also pay a little more each month ($25-$50 depending on if we can afford the extra) each month and we will cut atleast 1 year off of the term of the loan and pay less interest. By going in together we also lower the cost of maintenance on the boat. I do all the work and my mom tends to buy a lot of the parts (besides upgrades like prop and ballast) If there is a party of friends or family willing to take the plunge with you, I think this is a great way to cut expenses for the best way to have fun. It also makes sure that your friends and family make time to hit the lake with you almost everytime you go. in our case my mom wont go with out us. and we agreed thaqt anytime one party goes the other is welcome to go as well. (which should be the case anyways)

[ajholt7]

I dont think a boat is a bad investment. The utility rendered from the use of your boat may not be a monetary return, but what a lot of people forget is that life is not about money and you cant take it to the grave with you. IMO any type of toy that allows you to spend time with your family and create smiles, laughter, intense fun, adrenaline, and bonding moments is priceless.

Totally agree

[laserfish]

We do not spend money on lavish vacations, we bought a boat and eventually a lake house. We spend every weekend at the lake and have not regretted it in the least. In fact the lake place has increased in value more than any other investment. All of this is an investment in family and growing up on a boat has made our family closer. If someone gets mad on the boat, it is not like they can walk home By the way we were blessed to be able to pay cash for our gently used Tige.

[IDBoating]

Simple answer:

Investments are not certain. Interest on a loan is.

[robert theisen]

I work hard everyday so i can play hard every weekend on my boat.

[Nobody]

I work hard everyday so i can play hard every weekend on my boat.

I did know you work??

[robert theisen]

I did know you work??

shhhh! It's a secret.

[petrey10]

Not trying to start an argument just trying to clear up what I said... boating is a bad investment

Investment is putting money into something with the expectation of profit.


you won't earn anywhere near a profit from a boat but the good times, memories, and fellowship are the reasons to INVEST in boats... and with that added in the boat is the best thing I have ever purchased...

I hate it when people say the best day of a boat owners life is when you sell your boat... that is going to be a very sad day...


again no argument just trying to clarify what I said

[Ewok]

I hate it when people say the best day of a boat owners life is when you sell your boat... that is going to be a very sad day...

X2

[IDBoating]

I hate it when people say the best day of a boat owners life is when you sell your boat... that is going to be a very sad day...

x3.

I just sold my jetboat, having purchased a new 24Ve. Even though I have a brand spanking new Tige to enjoy, and I sold the jetboat to a close friend on the same lake, and I'll see and ride in it very frequently - it was STILL tough to sell it. It has been very good to our family, it was the gateway that got us to lakefront property ownership, and frankly we wouldn't own a Tige today had we not owned that boat first.

[lohe]

For me having the boat paid for is much better. Mostly due to how my job has fluctuated so much I would rather not have the monthly obligation.

Ya I could sell what I have put that down towards a new RZ2 and have a brand spanken new boat + a payment. Instead I love what I have still enjoy the days out on the water and just keep saving for the next few years for the RZ (wife still wants the RZ4).

[Nobody]

I hate it when people say the best day of a boat owners life is when you sell your boat... that is going to be a very sad day...

These are the boat owners that are too stupid and too lazy to maintain their boat.

[lalh20]

There is a lot of discussion on folks that own their boats outright versus financing them.

My question is - assuming you have the cash to pay off a new boat; why would you tie up cash on a depreciating asset? Rates on 5-10 year loans are <5% if you shop around and you can earn 7% with a modest investment strategy. In other words if you tie up lets say $50K on new/used boat (easy number for math purposes), that boat does nothing but depreciate over the useful life. If you borrow the money and invest the cash you would of otherwise paid the boat off with you can service the debt (5%) and also gain a premium (lets say 2% - that's my 7% number on a modest investment strategy.) If you value that strategy over 5 years you make $7K of interest income. Granted you have a monthly operating expense, but you have effectively paid for 14% of the boat by using your money to work for you.

Assume you earn 10% (5% premium over your cost of borrowing) on your investment strategy - over the course of the same 5 years you would have earned $17K or effectively paid 34% of your boat off by making your money work for you. That's the beauty of compound interest. You could run this scenario a number of ways and over different horizons - the math all says the same thing when you have a cheap borrowing base.

Your question is a good one and the truth is for many people it makes sense to keep the loan. I disagree with your assumption though that you can make 7% though.

Between 2000 and 2010, the market was volatile meaning there were both gains and losses but overall (depending when you bought in in 2000), in the end you would have been left needing a 31% return to get BACK to where you started.

If you can find a sure 7% return, you better take it. If you're making investment decisions based on a 7% expected return, you're taking a lot of risk - by risk I mean that the actual return vs expected return will likely vary a lot.

It's all about what you're comfortable but there's a fine line between investing and gambling. The difference is knowing how much you can afford.

[chadster2]

When I bought my boat I thought I'd pay it off quick... then all my tools got stolen.... then the next year... well I need to get my child through school... then the bottom fell out of construction..... Then I needed metal added to my body to hold it together... then I needed that same metal taken out..... So I'm thinking I'll pay it off real soon.... LOL! If I would have been stretched thin I would have lost it all... I'm sure!
my point is yes have money working for you but things could always get tight!