Midd: Meaningful Information and Direction for your Decisions
When buying a new boat, most people spend a lot of time deciding which boat to buy – new or used, sail or power, which model, from which dealer, boat yard or online seller. Then they put in a massive effort to negotiate the price down as low as possible. Thinking they’ve nailed their purchase, only then to do they start thinking about their boat loan.
If you’re spending more of your time on getting a good puzrchase price than getting a good boat loan, you need to rethink your priorities. The purchase price is only part of the boat buying deal. In this blog, we provide you with meaningful information and direction on boat finance to assist you with getting the best deal on your boat purchase.
Boat Finance: Moored
First up you need to be aware that there are a number of different types of loans available to businesses to purchase marine vessels, known as commercial finance products or facilities.
The popular commercial finance products, ie boat loans are:
- Chattel Mortgage
- Comprehensive Hire Purchase (CHP)
- Marine Leasing
- Marine Vessel Rental, Rent to Own
So what’s the difference?
The differences all relate to business accounting issues and it is important that you consult with your accountant as to which would best suit the way your business runs its accounts and your financial goals.
Accounting method: each loan type has a different approach and suitability needs to be considered in relation to if your business uses a cash or accrual accounting method. Cash accounting reports your business income/revenue and costs/expenses when received or paid. The Accrual method reports these entries when they are earned, ie when invoiced and when costs are incurred, ie your costs may be awaiting payment. Cash accounting is the most common method for Australian businesses.
GST: different elements of each loan type, ie interest, repayment, balloon/residual, have GST applied and can be claimed differently. GST does not apply to interest but does apply to fees and charges. With Chattel Mortgage and CHP you can claim the full GST on the purchase price on your next BAS statement. With Leasing and Rental contracts, the GST will be charged and claimed on monthly lease/rental payments.
Tax deductibility: different elements of each loan type, ie interest, repayment, balloon/residual, are tax deductible. With Chattel Mortgage and CHP, the monthly repayments and balloon are not tax deductible, only the interest is tax deductible. With Leasing and Rental, the monthly lease payments are tax deductible.
Balance sheet: With Chattel Mortgage and CHP the truck is entered on your balance sheet as an asset/liability. Leasing and Rental is an off-balance sheet finance type and the truck appears on the lender’s balance sheet, not yours.
If you’re taking out a boat loan for up to 7 years, how tax and GST impacts your cash flow can be significant, so you do need to ask your accountant which is the best loan for your business.
What’s the same?
Most marine finance deals include:
- Fixed interest rate
- Fixed monthly payments
- Fixed loan term
- For Chattel Mortgage and CHP the balloon will be fixed
- For Leasing and Rental, the residual is subject to ATO guidelines
Using an Online Boat Loan Repayment Calculator: The Heads-Up
Let’s face it, when you’re organising a boat loan you really just want to cut to the chase and know what it’s going to cost you each month. The monthly repayment. That’s the bottom line for most operators.
Knowing that even before you start looking at boats and going for the price squeeze, can be even better. Even just having a rough ballpark would be a great help. Even better if you can get those figures without having to go through the loan application process or even making a call.
You’d have an idea of what you’ll be up for each month on a boat with a $xxxx price tag so you can make better decisions. No point dreaming over that brand new vessel if your current workload contracts can’t cover the payments.
Online boar loan calculators are the answer.
You can quickly, actually instantly, calculate a rough ballpark estimate of what your monthly repayments may be on a certain boat purchase price at current interest rates.
You can access an online calculator from any device where you have an internet connection. So if you’re at the marina, in your office, or waiting for yourpassengers to arrive to embark, you can be using a calculator from your mobile.
- You enter the purchase price of the boat. You can add a little extra to cover dealer charges, insurance and other purchase expenses.
- Then enter the interest rate. What? It’s actually easy as the website will show the current interest rate that the company is achieving for commercial boat loans.
- Enter the number of years you would like to pay off the vessel. Be realistic! The maximum for some lenders is usually 7 years/84 months.
- Enter the balloon or residual you would like. This payment is due after you’ve made all the monthly repayments and is usually a percentage of the purchase price. Again, be realistic. Smart financial planning would mean you don’t want to owe more than the boat is worth at that time, ie end of loan term.
- Then click calculate and a monthly repayment ballpark estimate will be displayed.
We stress BALLPARK because online calculators are a generic resource and can only base results on the values you enter. The calculator does not have the capacity to allow for fees and charges that lenders will apply and specifics around your credit risk and profile which may result in a different interest rate or different conditions. Make sure you read the calculator disclaimer/instructions.