Boat loans may carry an overall cost that is extremely competitive with home loans. Terms on fixed rate boat loans are somewhat comparable to home loans, and boat loans do not require the high home loan fees, such as escrow, title insurance, processing fess, tax services, appraisals, attorneys fees, etc. When these costs are calculated into the equation, the home loan is often times more expensive.

Borrowing against your home can use-up a valuable financial resource. In the event of any emergency, home equity borrowing power will always be there. Once a boat is purchased with cash it becomes extremely difficult to borrow against the equity in the boat. Most lenders rarely offer that option in today's market; if they do, you'll probably receive a smaller loan or pay more for it in the way of a higher rate. Since most boat loans come with very short, or even no prepayment penalties, it may be wise to consider borrowing until you know the funds won't be necessary. At that point you can pay the loan off in full.

Cash vs. Borrowing

What about simply selling of some stocks or bonds, or using the cash you keep in your savings or money--market account? Cash used for a purchase may have better investment potential (especially in a rising market environment) that could easily surpass the cost of a boat loan. This is especially true for buyers in higher tax brackets, if you include the effect of tax deductible boat loan interest. For example, investing your boat purchasing dollars in a tax exempt municipal security in most cases provides a better yield than the after tax cost of a boat loan. Reducing your cash can also reduce your future financial flexibility and leave you unable to take advantage of new opportunities.

Borrowing from your own banker . . .

Some buyers enjoy the ability to call up their private banker and borrow money on a revolving line of credit, that perhaps is tied to their personal or business accounts. Again, this method can reduce future flexibility, borrowing options and leave you unable to take advantage of future opportunities. And if a loan is not explicitly tied to a boat through a written collateral agreement, the loan interest is in most cases not deductible. Maintaining a separate borrowing helps maintain greater privacy, and could allow for interest deductibility. Of course, in all matters involving large sums of money, the acquisition of debt and it's impact on income taxes, you should consult a competent tax authority and review your intentions.

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