This graph illustrates the depreciation on the boat (blue) versus the amount owed (red) and the cumulative interest paid (yellow), at 10%, which is typical on a high-risk loan. It is amortized over ten years to make the monthly payment "affordable". But as we see here, it means the owner is "upside down" for at least seven years into owning the boat. Moreover, he pays over half the price of the boat, over time in interest payments. This is a horribly bad bargain and a good way to get into serious financial trouble, fast. Why do banks loan money like this? It is, to say the least, reckless.
Note in the chart above, I am showing the boat value and loan value starting out at $100,000. Many boat dealers in the past would do 100% financing. But it also reflects the situation even with a 10% down payment, as the minute Jim drives the boat off the dealer lot, it is worth 10% less than he paid for it. So if he paid $110,000 for the boat, it is worth exactly the balance on the loan on the day of purchase, and then depreciates rapidly after that. Actually, in most cases, the boat is even upside-down on the day of purchase, particularly for low-down or nothing-down loans. The chart above is for illustration purposes. You could construct a more detailed chart using NADAguides numbers, but it would pan out about the same, I'm afraid.
Slick salesmen sell people expensive assets on "monthly payment" and never explain that they will be "upside down" on the loan for most of its term. If they decide, before the end of the loan, to do something different with their lives, they are stuck, plain and simple.
1. Never buy a boat or RV at a boat show. These shows use high-pressure sales tactics and don't allow you much time to think or compare prices. You are told that special sale prices are "good only for the show" as if suddenly the unit is more expensive the day after (that is, after all a law of nature, it has something to do with the space-time continuum). Purchases like these are ones you should definitely think about - for days, weeks, months, or even years. Deciding on the spur of the moment to buy a large boat or RV - without even test driving it - is madness. And yet, many do - at shows!2. Buy a lightly used boat or RV and save a bundle. Boats, RVs, Cars, and Motorcycles depreciate rapidly, usually by about half every five years. Some depreciate more slowly, some faster. But they all depreciate in value over time. Jim's boat will be a good buy for someone else, if the finance company ever repossesses it and sells it. Someone will get essentially the same boat as Jim bought new, for about half the price.3. Buy less boat or RV than you think you need. Jim bought a huge boat, which was not only expensive, but harder to launch and handle. They never drove it before buying it, and Jim just assumed it would handle like his smaller runabout did. Boat and RV shows showcase interior features of boats and RVs, which people ooh and aaah over. But they fail to appreciate it is a vehicle, not a house, and as a vehicle, it has to move under its own power - and be driven. A large boat or a large motorhome can be stressful and a handful for many ordinary folk. Smaller boats are a lot cheaper and a lot easier to deal with.4. Pay cash or use a large down payment to prevent from being upside-down. I always pay cash for toys. You can't afford to do otherwise. It is a great way to prevent you from spending too much on a boat, and if you decide to sell later on, you don't have this nightmare "upside-down" scenario to deal with. Can't afford to pay cash? Then you can't afford it, period.
5. Don't buy if you have other debts! As I noted in Selling a Car to Pay Off a Credit Card, it makes no sense to buy a "toy" or other optional item and/or incur additional debt, if you already have other debts you are making payments on. Debt is a serious business and it should be used for serious things - a house, maybe a car (when you are starting out) and your education. It should not be used for frivolous things like boats.
We have avoided this nightmare by paying cash for our boats. And even then, we still lost our shirts in depreciation, particularly on the last one. If we had borrowed money for that boat, we literally would have been unable to sell it, as we would have owed $45,000 on it, and it was worth only $35,000. Many people list their boats for the balance due on the loan - and usually don't get it. When I listed my boat for sale, some other owners of similar boats got upset, saying I sold it "too cheaply" - they had the same boat and owed far more on it that what I sold mine for.
So I lost a lot of money selling that boat (about $30,000) but at least I paid no interest (which could easily have been $15,000) and I didn't have to pay to sell the boat, and my options were flexible. Many folks keep boats like this, if they are "upside down" and end up paying for maintenance and storage as well - for years. Rather than take a modest hit all at once, they bleed to death slowly, over a decade.
If you are not sure you want to get into RVing or Boating, rent one first! RV rentals are not cheap, but they are far less expensive than making a $100,000 mistake if you buy one and it doesn't work out. Similarly, if you only go boating occasionally, renting a boat might make more sense.