Senate Cents: A Financial Wellness Blog

Summer is the season to hit the great outdoors, and having a new toy, like a boat or RV, is a dream for many people. But with interest rate hikes, spikes in the cost of oil and general economic uncertainty, you may be hesitant to make a big purchase right now.

Financing options, such as a secured loan, can make the purchase more manageable by spreading out payments. But borrowing isn’t right for everyone. Look at your budget and take into account other expenses, like storage, maintenance and gas.

Should you finance a big summer purchase?

Before deciding if and how you should finance, check in with yourself about why you want to make the purchase, says Jarrod Sandra, a certified financial planner based in Crowley, Texas. According to Sandra, clients are sometimes motivated by the idea of a boat or RV, not the reality.

“I think especially around toys, you get this ‘American dream feeling’ of waterskiing behind the boat every Saturday or being out in the beautiful wilderness,” he says.

Sandra, who once owned a camper, says this dream doesn’t always pan out. Maybe you rarely have time on the weekends to hit the water, or the remote campsite you envisioned is actually loud and crowded.

For those sure they want to buy, the choice of whether to borrow money depends largely on your overall financial picture, says Marianne Nolte, a certified financial planner based in Fallbrook, California, and an avid boater.

“Everything comes back to budgeting,” Nolte says. “It doesn’t matter if you’re a 25-year-old and you’re saving for your first house or you’re a 50-year-old who is settled in their financial journey. You have to make sure, cash-flow-wise, you’re not going to do damage to your monthly expenses.”

Nolte adds that just because you can afford the monthly payments on a loan doesn’t mean you should automatically get one. Make sure you’re also not forgoing larger goals, like saving for retirement, in order to cover the payments.

Both Nolte and Sandra recommend a test drive, like joining a boat club or renting an RV for the weekend, to get your feet wet before committing to the purchase.

Financing for boats, RVs and smaller toys

If you’re going to finance a large summer toy, you’ll probably need a secured or unsecured loan.

Secured loans are generally the most affordable option and are available at banks, credit unions and some dealers. Since the purchase itself serves as collateral, interest rates tend to be lower, and you can often qualify for a longer repayment term, sometimes up to 20 years.

One of the best ways to get approved for a secured loan is to provide a down payment of at least 10%, says Michael Lax, executive vice president and head of RV Marine Sales at Bank of the West.

Credit history also matters. If you’ve financed a similar purchase in the past, like with a car loan, it can go a long way toward making the approval process easier, Lax says.

Unsecured personal loans are another financing option and are offered by online lenders, banks and credit unions. These loans don’t require collateral, so you won’t risk losing the item if you fail to repay. Lending decisions are based on creditworthiness, income and existing debt, but annual percentage rates may be higher and repayment terms shorter, compared with a secured loan.

Some lenders let you pre-qualify for an unsecured loan, which is a smart way to check potential terms and compare different loans without affecting your credit score.

Borrowers eyeing smaller toys — think a personal watercraft or an all-terrain vehicle — may consider a credit card. But especially in an environment of rising credit card interest rates, you’ll want to pay off the balance as soon as possible. The cost of the purchase may also drive up your credit utilization ratio, which could affect your credit score.

If you have good or excellent credit, a 0% APR card can be a smart choice. You’ll pay no interest as long as you pay off the card before the promotional period expires and the regular APR sets in.

Consider related costs before making a final decision

The purchase price isn’t the only expense to keep in mind. Depending on the vehicle you buy, there's an assortment of related costs you’ll want to budget for.

Storage and transportation are some of the biggest. Though smaller items can live in your garage, larger items like boats may need to be stored offsite at a marina or parking facility. You’ll also need to transport the item, which may require a trailer and adding a hitch to your car or truck.

Maintenance is another concern. Similar to cars, toys require regular maintenance to stay in good condition, whether it’s changing a tire, checking the oil or preparing the vehicle for colder temperatures.

Gas, insurance and one-time fees, like docking or campsite expenses, should also be accounted for as you budget for the purchase.

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This article was originally written for and published on NerdWallet.com by Jackie Veling on May 26, 2022.