- December 28, 2016
- By Author
Savvy buyers are making the decision to finance even when they have the cash. Financial flexibility is key to getting the most out of your buying power. Pre-qualify today!
As year-end approaches, we all start looking at where we are in life. From New Year’s resolutions to squeezing in those last few thousand miles to get us to the next frequent flier level to what to do with disposable income. Why not take advantage of some of the best interest rates of the year …
Pay cash or finance?
It's a debate being played out all over the country. The current low interest rate environment is helping to drive sales, especially of yachts. Whether to finance or pay cash often is a big consideration for any potential buyer. Where arguments can be made for both sides, we are finding that, even if they have the cash, some savvy buyers will choose to finance for some very practical reasons.
Interest rates on boat loans are running at around 5 percent. Lenders who have been in the business for more than 30 years say they have never seen rates on boat loans so low. With borrowing rates low and attractive, financing instead of paying cash allows the buyer freedom to invest cash in growing financial markets.
Today, buyers can weigh the options. Sometimes even a partial finance, say 30%, can free up a good amount of cash for other options such as high yield managed funds, the market as it continues to climb, even real estate. These decisions should be made with the buyer’s financial advisor of course, as there are many things to consider that are individual to each portfolio.
There are other things to consider in the cash versus financing debate. Marine loans are more like home loans, especially on boats with a head, galley and sleeping quarters. For example, you can finance a boat for up to 20 years. Some say, because a boat with a head, galley and sleeping quarters qualifies as a second or primary home, you can deduct the interest from your federal income tax.
Historically, boat loan rates have been "priced a few points above those of home mortgages". This spread has disappeared for a variety of factors. Default and delinquency rates for boat loans are also very low, well below those on car loans and, certainly, credit cards. Competition among lenders for these high-quality loans has helped erode the spread between boat loans and other types of loans.
When you're shopping for loans, lenders advise you to ask about points, fees and closing costs, just as you would when shopping for a home mortgage. Watch out for early-payoff penalties. Make sure you're dealing with a lender that offers the level of customer service you think you'll need.
In synopsis, by financing the purchase of your new yacht, instead of liquidating assets or paying cash, you increase your financial flexibility. This allows you to take advantage of attractive new investment opportunities as they present themselves. You may even qualify for some tax advantages, similar to those you currently take on your home like deductible mortgage interest. These items together could potentially offset the cost of your boat in such a way that it may cost you less by not paying cash!
Get your ducks in a row, buy by year end or set yourself up for success in the New Year, call DetailsDetails today.