Financing Your New Boat
2012 is the Year of The Boat Buying Trifecta: Low Interest Rates – High Canadian Dollar – Low Global Boat Prices
We think that the 2012 will be the year of the boat buying trifecta; we have record low interest rates, a high Canadian dollar, and low global boat prices making the yacht of your dreams more affordable and closer to reality than we ever remember before.
With rapidly escalating numbers of Canadians reaching retirement age, many of whom are already smart enough to have realized this opportunity, the Canadian boat market is alive and well while markets in most other countries are stagnant or down.
To get a read on the situation and to make sure that our take on it was right, we interviewed some specialists in marine finance. In particular, we spoke to Gary Prichard, Regional Sales Manager for RBC Financial and Will Walker, president of Walker Financial and videotaped the discussions at the 2012 Toronto International Boat Show where an encouraging number of people were sitting down and writing deals on new boats.
We asked Will if new boats were selling and he told us, “Opening weekend of the Toronto International Boat Show 2012 was ahead of the sales level from 2011 and that’s a good sign because normally most of the deals close towards the end of the show.”
Show organizers later announced that well over 900 new boats were purchased at the show.
We wanted to know how boat buyers were paying for their new vessels. Some people pay cash [or say they’re paying cash] but in fact, they may have financing already organized or have a significant home equity line of credit set up through their regular bank branch. But there are also financing options available at the dealer level.
Gary Prichard began by noting that there seemed to be more people paying cash at the show this year, but it’s a rare individual who has more than a few thousand dollars in actual “coin of the realm”. Wise people park their money in high interest savings account, money market funds, T-bill or GIC accounts.
Gary Prichard pointed out that today, many customers work with a personal financial advisor and they often set their investments up with a “laddered” approach. A range of investment vehicles such as GICs, money market accounts, bonds and T-bills are structured to reach maturity at various times. So, there’s often cash flowing in for reinvestment or other uses.
Another way that some people walk through the boat dealer’s door ready to write a check is on their line of credit (LOC).
Because these lines of credit are typically secured by the equity in their home, (especially if the LOC is for more than $50,000) buyers can access funds at a lower interest rate, often close to prime. The pitfall of using an LOC is that it is generally set up as an emergency access to funds. You don’t pay unless you take the money out on the line; theoretically it’s there for the rainy day.
If you use up your LOC for something like a boat, even with all best intentions of paying it back quickly, you might find that the line of credit is used up when you need it most.
An equally significant consideration is that there are no structured repayment requirements. Will Walker told us, “We sometimes see people coming back 3 or 4 years later to trade up to a larger boat, but by then, it’s depreciated value does not cover the amount that’s out on the line of credit. In financial parlance, they’ve wound up “underwater” on their boat! Life has a tendency to get in the way,” observed Walker.
For many buyers, it’s a better idea to use the financing that’s available through the dealer. If that dealer works with Gary Prichard’s group at RBC, then you have the Royal Bank already set up to give you a loan for your boat. A private broker like Walker Financial operates in very much the same way, but has access to money through a number of different banks as well as some non-bank lenders.
We know the TD Bank is getting into this area in a much bigger way and BRP has recently entered into a new relationship with National Bank Financial Group to provide promotional retail financing to its retailers throughout Canada.
There are clearly benefits. When going through a recognized dealer, they know the values, take trade-ins and things can move ahead quickly.
Gary Prichard said that, “You can get sometimes get your loan organized in as little as 30 min. It’s easy to do the application right at the dealers’ [or at the boat show!] and you get what amounts to on the spot financing.
Loans for small boats are easily set up and for qualified buyers, even new boats 40 feet long or more, are easily financed. You may face a nominal administration cost but generally, the rates will be competitive and more importantly, the lender takes the boat as collateral. This way your other affairs are not affected and the bank sets up a defined payment structure that turns your boat into an asset over time.
Talk to your dealer – rates are low, the dollar is high and prices are attractive…right now.
By Andy Adams
