An important part of the process of taking out a boat loan is deciding on the monthly repayment amount that suits your budget. In some instances, that may be partially determined by the lender according to their loan guidelines and assessment of your individual loan application. For example, if a lender has a maximum loan period they will approve, that term in conjunction with the interest rate and total amount borrowed will set the repayment level. If a borrower wanted lower repayments over that same timeframe they would need to reduce the amount borrowed, find a cheaper boat or cheap interest rate boat loan. When engaging the services of Jade as your lender, we negotiate with the lenders to achieve the repayment amount that suits our individual customer requirements wherever possible.
Breakdown On Boat Loan Repayments
Regardless of how the monthly repayment amount is arrived at, with most personal and business boat loans, that amount is fixed in equal monthly instalments over the term of the loan. For a 4 year loan that would be 48 equal monthly payments, for a 5-year term, 60 payments. At the end of the term when all the repayments have been made, the borrower takes full ownership of the boat.
While many borrowers will stick to the repayment schedule as arranged, some will consider whether they should make extra payments. If they have additional money come in from some source such as a tax refund or a wage rise, reducing debt by paying more on loans can be advisable.
So when it comes to boat loans are extra payments permitted? And if so, what is the upside and the downside of making extra payments?
Making Additional Payments To Your Boat Finance
Making extra payments is the process of paying additional monies towards an existing loan. With personal secured boat loans and unsecured personal loans for boats this is permitted by the lenders but fees can apply (we cover that below, so please read on). These types of consumer loans are regulated by ASIC laws. But with business finance, which is not regulated in the same way, a different scenario exists and the fees can differ depending on the finance contract.
Personal Boat Loan Considerations
- If you’re unsure if this is the best use of any extra money you may have, speaking with a financial advisor is advisable.
- If you have a personal boat and decide to make extra payments you should contact your lender to advise them of your intentions.
- The lender will advise of any special code that may be required on the deposit so it can be accounted for appropriately.
- Any additional monies made against a loan cannot be later withdrawn. A boat loan is not like a bank account where you can deposit and withdraw at will. Once you’ve made the extra payment against a loan it is deducted from your loan obligation and that’s it. There is no allowance for a change of mind. So carefully considering this option is advised.
- Additional payments can be claimed against future scheduled monthly payments. That means you can deposit monies and designate the amount for repayments ahead.
The Upside: Save on Interest Paid Towards Your Boat Loan
For personal loans, there are a number of upsides of making additional payments:
If you make extra payments but still stick with making the repayments according to your schedule, you will repay the entire loan amount earlier than the scheduled end of the loan term. So you’ll own your boat sooner than planned, have it as an asset and be clear of the loan debt.
The total amount of interest paid on the loan is reduced. With consumer loans, the interest charged on loans is calculated at a daily interest rate and charged against the boat loan monthly. So over the term of the loan, the interest charged will be less if extra payments are made.
The Downside: Boat Finance Break Fees
The downside of making extra payments is that means the loan will be paid out before the scheduled expiration of the loan term and that can incur break fees.
Exactly how much those fees will be is dependent on:
- How much is outstanding to be paid on the boat loan.
- How much time still remains on the loan term, that is the number of months.
While borrowers are advised to contact the lender for a specific fee, there is a general guide for fixed interest rate consumer loans:
- Break fees can vary between $600 and $900 on a loan but charge on a pro-rata basis. That means based on how many months remain.
- If the fee was said $900 then dividing that by the total months into the terms (eg 60 for a 5-year loan) and then multiplying by how many months are outstanding, you arrive at a rough guide of the break fee.
Break fees would also apply if you sell a boat while under finance and pay out the remaining balance of the loan before the end of the loan term.
Commercial Boat Finance Considerations
Business finance contracts are not subject to the same rulings as consumer finance and that applies to the penalties and fees charged for finalising a finance contract before the fixed term ends. The fees will be subject to individual lender requirements and may be calculated in several ways including:-
- Based on the Rule of 78 which is refers to when during the loan period that the interest payable is charged to the loan. Fees charged would then reflect the amount of the loan principal which has been paid/outstanding compared with the amount of interest.
- A discount rate on the balance outstanding.
- The interest rebate percentage is the amount of the interest outstanding calculated as a percentage of the total.
When considering making extra payments, it can be advisable to contact your lender first and discuss what break fees your actions will incur and weigh that up against savings made on the interest and other benefits.
To discuss lending repayments that suit your budget, contact 1300 000 003
DISCLAIMER: THE INFORMATION AND SPECIFIC DETAILS CONTAINED IN THE CONTENT OF THIS ARTICLE HAVE BEEN PREPARED AND ARE PRESENTED PURELY AS GENERAL INFORMATION AND NOT INTENDED AS THE ONLY SOURCE OF FINANCIAL ADVICE FOR BOAT BUYERS AND LOAN BORROWERS. FOR THOSE THAT CONSIDER THEY REQUIRE SPECIFIC ADVICE, THEY SHOULD CONSULT WITH A FINANCIAL ADVISOR. LIABILITY IS NOT ACCEPTED IN REGARD TO ERRORS AND MISPRESENTED DATA AND DETAILS HEREIN.