Simple Interest vs Precomputed Interest Boat Loans: Which Costs More?

How simple interest accrues day by day

On a $350,000 boat loan at 7.25% simple interest over 180 months, your daily interest charge is roughly $69.52 because the lender applies the rate only to the remaining principal ($350,000 × 0.0725 ÷ 365). Each payment first clears accrued interest, then chips principal.

If you sell the boat in month 48 with a $302,000 payoff quote, simple-interest math means you are not paying interest on months 49–180 you will never use. That is why most yacht buyers prefer simple-interest marine retail installment contracts when they plan to trade or upgrade within five years.

Ask the F&I manager to show the Truth-in-Lending disclosure and the amortization schedule side by side. If scheduled interest in year one equals the finance charge divided evenly across every month regardless of balance, you are likely looking at a precomputed structure instead of simple interest.

NMMA dealer education materials emphasize comparing sample contracts—highlight any precomputed language before you sign.

Take the long term, pay it off early

Most recreational boat loans come in 180- or 240-month boxes. The payment drop from stretching the term is real. The rate reward for taking 120 months instead is usually not. Take the longest term the lender will write so the monthly number is lower, keep the extra cash working in the market instead of depreciating on the hull, and let the bank carry more of the asset risk — with the intent to pay the note off early.

Typical ownership is about three years because that is the warranty window. There is no real boat lease. If you only keep it that long, you are eating the depreciation yourself when you trade, the note is cleared, and you start again on the next hull. That is why the chart marks month 36 as the usual hold and month 72 as the line where simple interest becomes the better remaining deal if you still have the loan.

Do not be sold by the rate alone. Commercial and recreational boat rates are often the highest consumer rates you will see. In the short term the gap between two quotes can be dollars. Do not lose sleep over about $100 a month when a price concession of $10,000, or stretching the term, more than covers it. Early payoff plus the longest term beats chasing a slightly lower APR on a boat you will not keep.

• Longest term, lowest payment, cash stays in the market, bank holds more asset risk.
• Plan the payoff before the warranty window closes, not at month 180.
• A $10,000 concession on the hull beats a $100 monthly rate argument on a three-year hold.

Where precomputed loans hide extra cost

Precomputed finance charges treat total interest like a flat fee added at signing. On the same $350,000 note, a precomputed contract might lock in $88,000 of finance charges even if you pay off early. Early payoff credits exist, but they follow the Rule of 78s or a fixed rebate table—not daily simple math.

Compare month-36 balances: simple interest might leave $278,000 of principal plus a few days of accrual, while precomputed could still show $285,000 owed because rebates lag. On a $70,000 difference, that is real cash out of your trade equity.

Dealer reserve sometimes pays more on precomputed paper because the lender books the full finance charge upfront. That does not make it illegal, but it is a reason to run the numbers yourself instead of trusting a monthly payment quote alone.

On twin-engine cruisers financed near $400,000, a $65 per month payment quote difference can flip between simple and precomputed structures—model cumulative interest at 7.0% versus 7.5% APR as well.

Negotiation levers before you sign

Request a simple-interest marine contract with no prepayment penalty. CFPB guidance treats prepayment penalties as rare on consumer loans, but marine retail installment contracts vary by state—read the prepayment paragraph even if the headline APR looks fine.

If the lender will not move off precomputed paper, still take the longest term for the payment and plan an early payoff — then raise the down payment if you need to shrink the finance-charge base. Do not shorten the term just to chase a slightly lower APR.

Bring your own amortization spreadsheet to closing. If the numbers do not match within a few dollars, pause funding until the lender regenerates the contract—wire mistakes on $300k+ boats are expensive to unwind.

Watch for marketing language that implies automatic lender approval regardless of credit—serious marine underwriters still verify liquidity, storm plan, and survey outcomes even when the dealer rushes a same-day signing.