I'm going to make an argument for the other side of the fence, i.e., that financing for 15+ years on an item like this makes sense. At least for some people. And provided the interest rate is low enough and the buyer will hold on to the boat for sufficient time.
Like most cars, boats are depreciating assets. Regardless of age, they generally do not increase in value, and almost always significantly decrease in value. That being said - while I am not a proponent of debt - there is an argument to be made that paying cash for a boat or paying it off early merely accelerate the monetary loss on the boat, and forego compound returns that could have been earned with that same money. For example:
Setting - Bob has $50,000 of "extra cash" in the bank and wants to buy a boat. Consider the following three scenarios.
Example 1: Bob buys a $50,000 boat, puts 0% down, and finances it for 15 years at 2.99% interest. His payment is ~$345 a month, at the outset of which ~$220 goes to principal, and $124 goes to interest. The total interest paid over the life of the loan is ~$12,000. He takes the $50,000 he has in the bank and invests it in mutual funds and earns a yearly return of 6% on his investment over that same 15 years (compounding yearly). Bob adds no additional funds to that $50,000 investment. At the end of that term, Bob's 50,0000 investment is now worth $119,927. Subtracting the cost of the boat ($50,000) and the interest payments on the 15 year loan ($12000), it can be seen that Bob is just under $70,000 AHEAD after that 15 year term. And that assumes Bob's boat is worth $0 at the end of the 15 year term.
Example 2: Bob buys the same $50,000 boat for cash. At the end of the 15 years, Bob has not only lost the $50,000 he paid for his boat (again assuming the boat is worth nothing at the end of the 15 years), he has ALSO lost the $70,000 in returns he would have seen had he made the $50,000 investment and financed the boat at 2.99% over the 15 years.
Example 3 - Same as example 2, but instead of investing the whole $50,000 bob invests $8,000 at 6% return compounding annually, and again adds no additional cash to the investment after it is made. At the end of the 15 year term that $8,000 investment is worth $just over $19,000. In this case, Bob's investment completely offsets the interest on the loan payment, he retains $42,000 at the time of purchase to use how he pleases, AND he retains his invested principal ($8,000). While he loses the $50k in boat payments, he has effectively paid no interest over the life of the loan on the boat. The biggest loss, however, is that in this example Bob has also foregone the $70,000 in returns that he would have seen had he invested the whole $50,000
Now tell me - in which of the above scenarios is Bob smarter?
IMO - the answer entirely depends on Bob's finances. If Bob is financially secure enough to invest the 50k, leave it alone for the 15 year term, and meet all of his other financial obligations, he would be far better served by example 1 than examples 2 or 3. Indeed in that scenario, the only time it makes sense for Bob to pay for the boat outright (or pay it off early) is when the interest rate on the boat exceeds the rate of return on the investment.
FWIW - the above is also true with regard to other types of loans, and particularly mortgages and home equity lines of credit. Indeed the interest on Mortgages and HELOCs is tax deductible, meaning that the borrower will obtain a tax credit that is typically about 33% of the amount of yearly interest paid. In other words, if the APR on a mortgage is 5%, after the federal tax credit the effective interest rate is really only ~ 3.4%. Which in most cases would mean that it would be smarter to invest extra money in the stock market than to use it to pay off a mortgage early.
Just food for thought. There is a good reason that compounding returns have been said to be one of the most powerful forces in the world.
And for the record - I hate debt as much as most financial advisors. BUT - in the right circumstances debt can be used as leverage to obtain greater returns. Most wealthy people understand that, and have used that principal to great advantage.
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