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valhalla360 · 01-09-2019, 04:01

Quote:

Originally Posted by benvanstaveren

I'm not sure how this works in the US, but most countries in Europe, you can actually insure yourself against this. If you finance your boat and it goes to the bottom, either your boat insurance pays out, and if they don't, you have a special insurance policy (kind of like life insurance, except it's for the "object" you're financing) that pays off the loan.

Of course, getting a new loan for a new boat after that may involve paying much more premiums than before.

YOU pay for insurance (bank typically requires it as part of the loan contract but you pay it). But they often don't keep up on the insurance status after the start of the contract, so it's not hard to let the insurance lapse.

With or without insurance, the bank is contractually expecting payment in full including interest.

The bank never took on the risk...except for the possibility that you default and had canceled your insurance but that has no real bearing on why you would or would not take out a loan.

Rubicon King · 01-09-2019, 04:06

Like my father says. “If it flies, floats or F...., rent it by the hour”. Cheaper in the long run

kenbo · 01-09-2019, 04:16

Quote:

Originally Posted by daletournier

Your right of course but only in the bigger picture, which is alot more macro than a loan for a boat.

In an individual case like this the bank really is taking no risk, they dont lose ,they seize the asset. I'll never understand how when people take a loan for a toy such as a boat they assume they are risking the banks money, they are not ,the banks got it covered. When you deposit money in a bank you are an unsecured lender to the bank, when they lend you money the asset is their security.

A toy is only bought with excess cash IMHO, and yes the theory that you can use your money to get a better return isnt as foolproof as it once was.

Dale,

Even on the micro level, lenders assume risk in making a boat loan unless they package the loan, sell it and get it off their books.

As an example, on the east coast of the US, during the period from 2009, the Great Recession, and 2012, when hurricane Sandy hit, there was an absolute glut of underwater boats on the market. I bought two for about a third of the pre- recession value from lenders trying to rid their balance sheets of non-performing assets. Now I can't say how much the lender lost or made on the loan after I bought the boats but they certainly didn't make what they planned on making when they made the loan.

Essentially, when an asset goes underwater someone loses either the borrower or lender.

kev_rm · 01-09-2019, 04:40

Quote:

Originally Posted by valhalla360

a64pilot has the real answer...the vast majority IN REALITY can't afford to pay cash. So they come up with excuses and explanations to justify buying based on the monthly payment they think they can handle.

Just for the record.... With respect and humbleness - I have the cash.

svspirited · 01-09-2019, 05:42

Quote:

Originally Posted by benvanstaveren

I'm not sure how this works in the US, but most countries in Europe, you can actually insure yourself against this. If you finance your boat and it goes to the bottom, either your boat insurance pays out, and if they don't, you have a special insurance policy (kind of like life insurance, except it's for the "object" you're financing) that pays off the loan.

Of course, getting a new loan for a new boat after that may involve paying much more premiums than before.

In the US, typically if you take a loan from the bank they require insurance if you finance the boat and they are typically the first lien holder and named on the policy so if she goes down the bank is able to recover its principal owed.

S/V Illusion · 01-09-2019, 05:57

Quote:

Originally Posted by svspirited

In the US, typically if you take a loan from the bank they require insurance if you finance the boat and they are typically the first lien holder and named on the policy so if she goes down the bank is able to recover its principal owed.

Correct. Which is how banks avoid any risk. And banks also have insurance protections.

The hypothesis that some have stated here that taking a loan on a boat somehow shifts risk is nothing more than a transparent attempt to rationalize a bad financial decision to buy a boat they can’t afford.

Belezar · 01-09-2019, 06:23

Quote:

Originally Posted by svspirited

In the US, typically if you take a loan from the bank they require insurance if you finance the boat and they are typically the first lien holder and named on the policy so if she goes down the bank is able to recover its principal owed.

This is incorrect about how insurance works. It protects the bank if you sink it, but not if you go belly up. The bank has their percent at risk, and if the market is off, the bank loses too. The cost of upkeep can be significant as well. Having a first lien isn’t protection for market risk.

valhalla360 · 01-09-2019, 06:45

Quote:

Originally Posted by kev_rm

Just for the record.... With respect and humbleness - I have the cash.

Just for the record...With respect and humbleness...

Without seeing your full financials, I don't know if you fall into which catagory:
- You claim something that is only true in theory but not in practice and are trying to justify why you took out a loan.
- You are not part of the "vast majority" (ie: you are the very rare exception)

valhalla360 · 01-09-2019, 06:50

Quote:

Originally Posted by Belezar

This is incorrect about how insurance works. It protects the bank if you sink it, but not if you go belly up. The bank has their percent at risk, and if the market is off, the bank loses too. The cost of upkeep can be significant as well. Having a first lien isn’t protection for market risk.

The question at issue is not if the bank has some risk.
The question is does it remove risk from the buyer.

They are not the same. If you have sufficient money to pay cash, you are so unlikely to go belly up, that it's an insignificant risk.

Dennis.G · 01-09-2019, 07:36

One possible reason to finance while having the capacity to pay cash: If paying cash requires withdrawing from a IRA/401k type account, drawing out a large lump sum will put you into a higher tax bracket for the year. Withdrawing over a period of several years will keep you in a lower tax bracket which may more than pay for the loan interest.

svspirited · 01-09-2019, 07:44

Quote:

Originally Posted by Belezar

This is incorrect about how insurance works. It protects the bank if you sink it, but not if you go belly up. The bank has their percent at risk, and if the market is off, the bank loses too. The cost of upkeep can be significant as well. Having a first lien isn’t protection for market risk.

Correct, for collision insurance, but they will also more than likely require you to take out mortgage insurance as well to protect against you defaulting if the loan is above a certain size, unless you have another asset backing the loan as collateral that they then become first lien holder on and will happily liquidate should you default.

The primary lien is there and backed with collateral to help mitigate their market risk. They can't eliminate it entirely but their lien on your assets used as collateral prevent you from selling without first compensating the various lien holders and the banks always make sure they are first in line. Now, if the bank gave you a loan with no collateral other than the boat backing it then they deserve to lose their pants should you default because we all know they will never get the principal back when they auction it off.

Dennis.G · 01-09-2019, 07:57

Quote:

Originally Posted by Peregrine1983

It’s simple. Compare the return you can expect from leaving the money invested to the rate at which you can borrow.

If you can borrow at 3% and make 5% after taxes leaving it invested, borrow. Vice versa, pay cash.

If it was this simple banks would not have cash available at 3% for boat loans as they would all invest in the 5% return investment markets themselves. However they are happy to loan at 3% because the risk is very low. Banks have smart people working for them and always calculate the risk versus return. If you think that the risk involved in an investment returning more than the market rate of boat loan makes sense, most likely you are simply mistaken.

Belezar · 01-09-2019, 08:03

Quote:

Originally Posted by valhalla360

The question at issue is not if the bank has some risk.
The question is does it remove risk from the buyer.

They are not the same. If you have sufficient money to pay cash, you are so unlikely to go belly up, that it's an insignificant risk.

Some posters kept saying the bank had no risk. Totally incorrect. And some banks make nonrecourse loans on boats and planes. I personally think that’s dumb but they do.

Yes, the bank can go after other assets if it’s a recourse loan, which it usually is, but if a person is defaulting on a boat loan they are likely in trouble several places. They don’t have any security on other assets, so they have to fight like any creditor for their share.

Your idea that they aren’t likely to go belly up if they had cash to buy the boat is a little off, too, at least in the US. Medical debt accounts for about half of bankruptcies. Things come out of nowhere in business, too. It might be a decent bet for the bank but it’s still carries some risk.