Boat Loan Math: Amortization, Interest, and Why Marine Financing Is Different

A friend of mine bought a boat last summer. He told me the monthly payment and I asked him what his total cost would be over the life of the loan. He had no idea. When I ran the numbers, he discovered he would pay nearly 40% more than the purchase price in interest alone. He had signed a 15-year loan at 7.5% because the monthly payment "looked reasonable." This is the fundamental trap of long-term financing: the monthly payment is a terrible measure of cost. The total interest paid is what actually matters, and understanding the math behind amortization is the only way to make informed financing decisions. The Amortization Formula Every fixed-rate installment loan uses the same formula: M = P x [r(1+r)^n] / [(1+r)^n - 1] Where: M = monthly payment P = principal (loan amount) r = monthly interest rate (annual rate / 12) n = total number of payments (years x 12) Let us work through a real example. A $45,000 boat loan at 7.5% APR for 15 years: P = 45,000 r = 0.075 / 12 = 0.00625 n = 15 x