Financing your boat

Hordes of people want to live the dream of boating in Australia. Needless to say, purchasing a boat is high on the agenda of numerous aspiring seafarers.

But hopefully this quarterly series – taking you through the finance process – will assist you in wading through the boat loan hodgepodge.

There are several ways to purchase a boat: broker finance; dealer finance; superannuation; bank loan; cash etc. But how do you make the right decision, or more importantly, what’s the right decision for you?

Based in Queensland, a specialist caravan finance broker like Credit One can tailor a solution by comparing options from over 34 of Australia’s leading financial institutions.

Credit One’s general manager, Jarred Lembo, says the six most common ways to fund a boat are: cash; redraw on mortgage; bank loan; draw down on superannuation; dealer finance; and broker finance.

However, he adds that all of these possibilities have their advantages and pitfalls.

“Purchasing a boat with cash allows you to buy exactly what you want, when you want,” Lembo said. “But you’ll also dwindle your ‘rainy day fund’, and there’s also the opportunity cost of not using the money for other investments, holidays or retirement spending.”

Lembo says that redrawing on a mortgage, with a low ‘headline’ interest rate, can provide an ability to make extra payments but also could add years to your home loan leading to significantly higher interest payments over the long term.

And he adds that a personal loan option (bank loan) may be a great way to purchase an older or private sale boat. However, as this one product loan is generally unsecured, it may attract a higher interest rate than specialist boat loans.

“When drawing down on superannuation it is worthwhile considering the overall relative performance of your super fund and whether the capital left untouched for a further period of time would result in a higher capital amount and larger superannuation nest egg,” Lembo said. “No interest is paid and there’s certainty of buying power, but you have to consider the opportunity cost of not having the money invested.”

Lembo says that often large boat dealerships will have a full-time finance manager on site who can help arrange ‘on the spot’ finance and very fast approvals. But the inherent issues are limited choice of financiers and loss of bargaining power with the dealer.

“More and more smart boat buyers are using specialist boat finance brokers to arrange a ‘best of both worlds’ finance option,” Lembo said. “Broker finance often gives the quick and convenient approval that your dealer can but also with a huge choice of lenders to choose from.”

And he says that interest rates can vary significantly between lenders and may be influenced by age of the asset. (Lenders prefer new to three years old and other factors such as time in job or address.)

But he adds that you receive a quick online approval process – normally with low fixed rate options much cheaper than bank personal loans – with pre-approvals giving you the confidence to shop and negotiate like a cash buyer. However, some brokers may charge a small fee to cover their costs which is generally offset by interest rate savings.

Lembo also offered some handy hints for securing the best boat finance deal.

“Always put your head before your heart … it’s easy to get swept up in the heat of the moment at a boat show and sign on the dotted line for something that’s a little out of your reach.

“We will also take into consideration your predetermined budget, give you a hand to calculate living expenses and compare all available options on loan term, interest rate and any early termination or other fees.

“And we’ll compare offers from all of the leading banks and finance companies and can tailor repayment options to your individual circumstances and have the banks competing for your business. We can also arrange no obligation, free pre-approval before you shop – giving you the confidence to negotiate with a private seller or dealer knowing that you have a pre-approved limit.

“Whilst adding a boat purchase to your home loan might seem like a good idea it can add years to the loan term and mean that you will pay much more interest than if you had secured a low rate boat loan secured only against the boat. The advantage of securing only the boat is that the loan generally will run for a predetermined term rather than being ‘tacked’ onto your home loan that could effectively extend your home loan for another 10 years or longer.”

It’s also pertinent to note that many boat loans offer flexible repayment structures over two- to seven-year terms, with no deposit and 100 per cent finance available. Meanwhile, balloon or residual payments will reduce your monthly repayments but you’ll owe a lump sum at the end of the loan term.

And in some cases you can borrow more than the boat is worth, thus allowing you to factor in the cost of accessories, insurance and registration of the boat.

Additionally, it’s important that you don’t over-commit, and reading through the contract fine print is a must. Always consider the interest rate, term of loan, repayments structure, fees, insurance etc.

Check out the full feature in issue #503 of Trade-a-Boat magazine. Subscribe today for all the latest boat news, reviews and travel inspiration.