Does it matter where the money goes?

[matthewmiller01]

That's my question. Say I am upside down on my boat by ~$7000. If I have ~$15,000 to put toward the trade-in and purchase of the next boat, does it matter where it goes? By that, I mean, do I take the money and put all (or a portion) on the current balance and get the equity positive? Or do I just keep the negative equity in the trade-in and put it all toward the price of the new boat? Or does it even matter since the bottom line ends up being the same in the end anyway? I think it will all be the same and it won't matter either way, I just wonder if it matters where the money goes. This question goes for the sale, but also for the credit report impacts too (if it will matter). Thanks.

 

[chumbley]

Seems to me that if you are upside down 7K, and have 15K towards a trade, then you really have 8K towards a trade. Right? I don't think it matters how you work the numbers, as long as you don't roll extra dollars into the financing (as you'll pay for that with interest).

You should also think about whether a trade right now might put you even further upside down within a year...especially if you are dealer trading for new, and bigger.

 

[Sundancer]

I'd guess there are some tricks you could play with the original purchase price and trade in of your old boat to minimize the sale tax on the new one? Of course, it's probably not legal or something.....

 

[matthewmiller01]

Seems to me that if you are upside down 7K, and have 15K towards a trade, then you really have 8K towards a trade. Right? I don't think it matters how you work the numbers, as long as you don't roll extra dollars into the financing (as you'll pay for that with interest).

You should also think about whether a trade right now might put you even further upside down within a year...especially if you are dealer trading for new, and bigger.

That's what I was thinking... that it really doesn't matter where the money goes. Of course, I would be trading up in size (210 Select to a cruiser), but not new-used. I suppose I don't exactly understand what you mean by being more upside down in a year. Are you talking about further depreciation of my current boat or the new one?

 

[rabyers1]

If you have the money available and are intending to use it for your recreational endeavors (not supporting your household budget or rainy-day cash jar); then you should probably pay off that $8K boat loan ASAP, as you are just frittering away non-deductible interest at this point. Also, getting the current leinholder out of the way now may simplify and expidite your purchase transaction when you pull the trigger on the new boat.

 

[northern]

What is your interest rate. What can you get for your money in a bank. Figure out what puts you ahead.

 

[matthewmiller01]

Yes. The money that will be used is designated for this purpose-toys. The situation described was if I were UPSIDE DOWN by that amount, what would be best. I wouldn't have enough money to pay off the loan completely and get rid of the lienholder altogether. I am sure that would be the best situation, but that wouldn't be possible.

 

[Henry Boyd]

To go back to the original point about rolling the existing loan balance into the future boat. First off, in the present financing world it is darn hard to get financing on the current cost of a new boat, let alone financing on the new boat, and existing loan balance. So the only way this could work would be if the existing loan balance was less than any discounts off the MSRP of the new boat. And then most boat financing companies already know that MSRP is pretty much a joke, so it is doubtfull whether they would finance anything more than what they believed the current selling price to be.

As a result, the topic might be irrelevant, but here is the theory; As you know all new boats (as well as cars, trucks, trains etc.) take an immediate hit to their current fair market value when they go from being 'new' to being 'used'. In many cases this reduction in current FMV technically makes the deal under water for the first few months of the loan (or lease). By inflating the purchase price with the existing loan balance, the situation becomes exacerbated.

I've seen commercial equipment leases where the mandatory purchase option price at the end of the lease (yeah, I know its a contradiction) that was tied to fair market value plus 'unresolved balances' became so inflated through term modifications that it was twice the true FMV. Each time the lease was modified and re-written a portion of the balloon payment carried forward and accumulated.

If one was underwater on a loan, it seems to me the best strategy would be to pay off the loan and take the hit. Then move into the next boat using a down payment that would reduce the starting loan balance to a point where it would never be underwater. Painful but it does keep the principal balance and resulting interest down.

Henry

 

[douglee25]

When you say '$7k upside down', are you referring to what you can sell the boat for and what you owe on the loan? If so, I think you're only going to be able to roll that debt into a 'new' boat if your loan amount is within the guidelines of debt/equity and initial investment percentage (percent down) to qualify for the new loan.

If a boat you're looking at is 10 years old and the finance company will only finance 80% or 90% of the purchase price, find out what your downpayment MINUS your $7k figure correlates to percentage wise on the purchase price. If you're within that specified range, more than likely you'll get the loan. Otherwise you're SOL. Make sure that you speak to the bank and see if you'll qualify or not before you go selling your current boat. With the current market, banks are so tight that you may end up being boatless.

Doug

 

[Presentation]

You asked..............................

If you don’t own a business, loans are for three things:

- Your primary residence, have at least 20% down, 15 year fixed loan, with payments that do not exceed 25% of your take home pay. If your payment is above this then you are buying too much house.

- Your education. This is a investment in yourself for higher future earning potential.

- Medical reasons.

Buy boats and other toys, vacations, etc with cash. If you don’t have the cash don’t spend the money.

 

[chris41483]

This is speaking from a finance perspective at a dealer (it's what I do!). I would go to the dealer and simply tell them you wish to trade, and do not mention the money down unless they say it is absolutely necessary.
You are moving to a cruiser (which will have a head) and therefore if you have a half decent accountant (speaking from experience also, as my father owns an accounting firm), you can write off the interest on the cruiser as a second residence.
I am assuming that you have some form of other debt than just a boat, where the interest is non-deductible, and you would benefit more by allocating your mnoney to this item, and then saving the money you would have used to pay that down as your "equity guard" or whatever you would like to call it. This would of course require you to be very conditioned about managing your debt, so as to not throw the cash you have right now down the drain, but if you pay off an equal amount of debt on something else, you would be in the same situation, right? the equity would just simply be in something other than the boat.
Speaking from a dealer's perspective also, they want your business enough to shave the price in order to obtain financing for you if they believe you have no downpayment. After all, the downpayment offsets more than just your inequity, it offsets their profit.

Hope this helps!

 

[chumbley]

That's what I was thinking... that it really doesn't matter where the money goes. Of course, I would be trading up in size (210 Select to a cruiser), but not new-used. I suppose I don't exactly understand what you mean by being more upside down in a year. Are you talking about further depreciation of my current boat or the new one?

You are upside down, by 7K. So you take 7K of your 15k available, and with the boat trade, wipe out the current loan (and the current boat). You have nothing, except 8k now. You apply that to a new loan, on a cruiser. It's going to depreciate. Think about whether your payment schedule along with your down payment are going to keep you where you want to be.

FWIW, I agree with Presentation. Paying interest on depreciating assets will never make financial sense, even if you can "write off" the interest as a second home because it has a head (and as I recall it is a bit more complicated than that).

 

[chris41483]

not to argue, but it is only more complicated if one of the following applies:
-it is in a business name
-you are writing off depreciation
-you are writing off trips for business use
-you are writing off fuel for business use (then there are pita equations for averaging or choosing bewtween mileage and %usage deductions