Financing Your Boat

I wanted to share some important tips that I have learned over the years about getting financing for your boat. Some of them may certainly be considered common sense, but we all need reminders occasionally to keep us from getting swayed by the excitement of getting a new boat.

1. Shop around for your boat loan. It is always wise to get at least three different quotes for your boat loan. Besides the obvious differences there are in the percentage rate you pay for your boat loan you can also pay different amounts for the down payment that is required, the number of years they are willing to finance the boat can vary, there may be a pre-payment penalty, and then there are possibly different points to pay and other various fees that may be charged by the lenders.

Typically for a large boat you will have to put down a 20% down payment and they can finance the boat for up to twenty years, but this can all vary from lender to lender and on the boat you are financing and your credit score. You should certainly get a quote from your local bank but also search for boat loans on the internet. Always be careful when you are dealing with a company that you do not know and research them carefully before giving them any of your personal information or any fees that they may require. When I have financed a boat from a lender in another state I had no problems dealing with them and having the paper work sent where it needed to go so this was a good option for me.

2. Consider the impact on your boat insurance due to a boat loan. If your boat is financed you will most likely have to carry different boat insurance coverage than you will if your boat is not financed or is financed through other sources. If you elect not to get financing on your boat or finance it through other means such as a loan from a relative or by using a line of credit on your house then you may be able to save money on your boat insurance.

3. The finance charges you pay for your boat loan may be deductible. You will have to ask your accountant but many times based on the way you will use the boat and if it has living quarters (sleeping platform, cooking facilities and toilet) then the finance charges you pay could be deductible as a second home when you file your income taxes.

4. You may have to have your boat documented by the US Coast guard. This may be required depending on the type of boat loan you get. This process can take some time and will cost you additional fees. The USCG documentation allows the lender to essentially place a mortgage on your boat which gives them a more secure loan. If you are purchasing a boat that already has USCG documentation you will have to pay a fee to transfer the documentation to your name but it allows the lender to perform a search to verify there are no other liens on the boat you are purchasing.

Getting a boat loan can be a difficult and frustrating process but doing the research to choose the best lender for you will be well worth the effort.

The author, Captain Bill Rountree, is a lifelong boater, holds his US Coast Guard Masters license and a US Sailing instructor certification. He has owned motor yachts, sailing yachts, racing sailboats, rowing shells, kayaks, windsurfers and on and on. He spent two years living aboard and cruising on a forty foot sailboat and has over 10,000 blue water miles. After returning from his cruise he was dissatisfied with the resources available to sell his boat (and did not want to pay the 10% broker fee) so he started his own online website to sell his boat

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How Does CFD Finance Actually Work?

CFD finance is relatively simple to understand, if you understand the whole process of trading a CFD. When you buy a Contract for Difference you are only required to provide a small margin. This margin requirement is required to cover any loss you may make on a position and changes from day to day as the value of the underlying position changes. The small margin that you pay does not cover the cost of the underlying instrument. To hedge your position the broker will buy the underlying share when you enter a position and to do this has to front up with the full purchase price. In effect the broker is lending you the cash while you hold the position open.

Buying CFDs

When you buy a CFD the broker will charge you interest on the money. The rate of interest is applied to the face value of the position, i.e. the number of contracts times the current price. So if you buy 1000 contracts of BHP at $33, then you will be required to pay interest on $33,000. This is how CFD finance works when trading long.

Selling CFDs

On the other side of the coin if you sell a CFD short you effectively receive the cash for that sale. While it does not end up in your bank account it does end up in the brokers bank account if they sell the underlying stock. So selling 1000 contracts of CBA at $33 would mean that you would receive interest on $33,000. This is how CFD finance works when trading short.

How Much Will It Cost?

Interest rates vary from provider to provider but are usually based on the following formula. A reference rate of interest plus a margin of 2 – 3% for long positions and a reference rate of interest less a margin of 2 – 3% when trading short. The reference rates used are typically the Reserve Bank of Australia (RBA) rate or the London Interbank Offered Rate (LIBOR). The broker is therefore making money on the interest margin that they take on each position. This is how CFD finance works for them and CFDs could be regarded as a sophisticated way to lend money.

How Are CFD Finance Charges Calculated?

Interest charges are calculated daily and do not apply to positions opened and closed on the same day. Intraday trades are therefore exempt from interest, while trades held overnight will incur charges. CFD finance does not apply to intraday positions. When trading CFDs the impact of finance costs is minimal as interest rates are currently at about 6% per annum while CFD positions can easily fluctuate 6% in a day.

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