Financing Boats, RVs and More – Daily Ardmoreite
NerdWallet’s Jackie Veling
Summer is the season for the great outdoors, and getting a new toy, like a boat or an RV, is a dream come true for many people. But with rising interest rates, spikes in the cost of oil, and general economic uncertainty, you might be hesitant to make a big purchase right now.
Financing options, such as a secured loan, can make the purchase more manageable by spreading out the payments. But borrowing is not good for everyone. Look at your budget and factor in other expenses, like storage, maintenance, and gas.
SHOULD WE FINANCE A BIG SUMMER PURCHASE?
Before deciding if and how you should finance, check with yourself why you want to make the purchase, says Jarrod Sandra, a certified financial planner based in Crowley, Texas. According to Sandra, customers are sometimes driven by the idea of a boat or RV, not the reality.
“I think mostly toys, you get that ‘American dream feeling’ of waterskiing behind the boat every Saturday or being out in the beautiful wilderness,” he says.
Sandra, who once owned a camp, says that dream doesn’t always come true. Maybe you rarely have time to get in the water on the weekends, or the remote campsite you’re considering is actually noisy and crowded.
For those who are sure they want to buy, whether to borrow money largely depends on your overall financial situation, says Marianne Nolte, a Fallbrook, Calif.-based certified financial planner and avid sailor.
“It all comes down to budgeting,” says Nolte. “It doesn’t matter if you’re 25 and saving for your first home or a 50-year-old man who’s well settled in his financial journey. You have to make sure, in terms of cash flow, that you are not going to hurt your monthly expenses.
Nolte adds that just because you can afford a loan doesn’t mean you should automatically get one. Also, make sure you’re not giving up on bigger goals, like saving for retirement, to cover payments.
Both Nolte and Sandra recommend a test drive, such as joining a yacht club or renting an RV for the weekend, to get your feet wet before committing to the purchase.
FINANCING FOR BOATS, RVS AND SMALL TOYS
If you’re going to finance a big summer toy, you’ll probably need a secured or unsecured loan.
Secured loans are usually the most affordable option and are available from banks, credit unions, and some dealerships. Since the purchase itself serves as collateral, interest rates tend to be lower and you can often benefit from a longer repayment term, sometimes up to 20 years.
One of the best ways to get approved for a secured loan is to provide a down payment of at least 10%, says Michael Lax, executive vice president and head of marine RV sales at Bank of the West.
Credit history is also important. If you’ve financed a similar purchase in the past, such as with a car loan, it can make the approval process much easier, Lax says.
Unsecured personal loans are another financing option and are offered by online lenders, banks, and credit unions. These loans don’t require collateral, so you don’t risk losing the item if you don’t repay. Lending decisions are based on creditworthiness, income, and existing debt, but annual percentage rates may be higher and repayment terms shorter, compared to a secured loan.
Some lenders let you prequalify for an unsecured loan, which is a smart way to check potential terms and compare different loans without affecting your credit score.
Borrowers considering smaller toys — think a personal watercraft or all-terrain vehicle — may want to consider a credit card. But especially in an environment of rising credit card interest rates, you’ll want to pay off the balance as soon as possible. The cost of buying can also increase your credit utilization ratio, which could affect your credit score.
If you have good or excellent credit, a 0% APR card may be a good choice. You won’t pay any interest as long as you pay off the card before the promotional period expires and the regular APR sets in.
CONSIDER THE ASSOCIATED COSTS BEFORE MAKING A FINAL DECISION
The purchase price is not the only expense to keep in mind. Depending on the vehicle you purchase, there are an assortment of related costs that you will want to budget for.
Storage and transport are among the most important. While small items may live in your garage, larger items like boats may need to be stored offsite in a marina or parking lot. You will also need to transport the item, which may require a trailer and adding a hitch to your car or truck.
Maintenance is another concern. Like cars, toys require regular maintenance to stay in good condition, whether it’s changing a tire, checking the oil or preparing the vehicle for colder temperatures.
Gasoline, insurance and one-time costs, such as mooring or camping fees, must also be taken into account in the purchase budget.