Boat Loan Basics

By Brandon Bissell

Not too long ago, finding a lender that made boat loans was difficult. Today, the challenge is deciding which lender to use. In an active boating market, you'll find several sources for boat loans, so it's a good idea to compare rates and terms to determine the financing best suited for you.

Looking out for the best interests of boaters and the boating industry is The National Marine Bankers Association. NMBA was founded in 1979 to educate current and prospective lenders in marine financing procedures and to promote the extension of credit to consumer and trade borrowers. Members of the NMBA include financial institutions such as commercial banks, private financing firms, savings and loan companies, credit unions and retail service companies.

Choosing a Lender Some lenders have added boat loans to their more traditional auto and real estate offerings, even deciding to specialize in boat loans by devoting funding and staff for the purpose. So where should you start?

Your Own Bank Or Credit Union: Many local, regional, and national banks are members of NMBA and offer boat loans directly to their customers. Start with your own bank or credit union, and call them or check their website to see if they finance boat purchases. Inquire about rates and how long a loan term is available for the boat you are considering.

Financial Service Companies: These organizations maintain relationships with local, regional, and national lenders, giving them broad access to finance programs. Again, look for an expert in marine lending, and membership in the NMBA.

Boat Dealers & Brokers: if you're buying from a dealer, it is likely that an on-staff NMBA Finance Manager will handle the whole transaction, from assisting with the application, vessel titling and the loan closing.

Other dealers may not have a finance specialist on their staff, but they may employ an outside loan service company that handles all the same tasks, and it will arrange all of the details, or simply send you to a bank or financial service company they refer business to, to have them handle the transaction.

Should you work with a lender directly, or go through the boat dealer or broker? Dealers usually have established relationships with several finance sources. They also have access to extended warranty programs that can be included in your financing. Because of their relationship with boat manufacturers, dealers may have special finance programs on certain brands or models. Such programs might include delayed first payment, no interest for several months, or lower rates for a limited time.

Choosing a Loan If you believe that financing a boat is like financing a car, think again. Much like real estate loans, several types of loans are available to finance your boat.

Simple Interest Loans are the most common, simplest, and generally considered most favorable. This fixed-rate and fixed term simple interest loan maintains the same monthly payment for the life of the loan. At the end of the loan, the borrower has paid off all interest and principal obligations.

Variable Rate Loans have interest rates that float based on different interest rate indexes, such as the "prime" rate, or LIBOR rate. Variable rate loans often offer low introductory interest rates, which can change daily, or at some preset point in the future, usually months or years. Make sure you look at the adjustable period and other details to clearly understand how payments could change and anticipate how to manage them.

Balloon Payment Loans require borrowers to pay the entire balance at the end of a stated term. Some borrowers choose this type of loan, since they know they will only own a boat for a certain period, say three years, and prepare to pay off the loan at that time.

Regardless of the type of loan, lenders are required to explain the complete details of any type of loan provided. Make sure you ask questions about the different types and choose the one that best suits your financial profile.

Applying for Your Loan Here's a simple rule of thumb: The more you want to borrow, the more details you'll need to provide. Depending on how much you want to borrow, some lenders will require a full written application, while others will take the application over the phone.

The boat loan decision process is quite simple and straightforward. There are two major aspects that are examined: You and The Boat. You may be asked to provide:

About You: * Your complete name, address, phone number * Employment details * Verification of income (Tax returns for the last two years) * Details on homeownership * List of monthly financial obligations (Credit cards, alimony/child support, mortgage/rent, etc.) * Personal financial statement (Assets and liabilities)

About the Boat: Have all of the boat information available for the application: * Year, make, model, power, optional equipment and any upgrades * The total cost, which will include: * Purchase price * All equipment upgrades or additional accessories * Sales taxes that must be paid at the time of purchase * Registration, title, or documentation expenses

The Loan Underwriting Process Getting boat loan is not a sure thing, or you may not qualify for the entire amount you're applying for. Will you be able to buy the boat of your dreams? That depends on several factors. The lender will be looking for "red flags" on your credit history. * Have you continually and satisfactorily made credit card and loan payments? * Have you ever had a loan comparable to the amount you're requesting? * Are you carrying debt that disproportionate to your income? * Do you have a down payment that meets the lender's guidelines?

The lender will look at your present monthly obligations, and then add the monthly payment for the boat loan. They may also add the presumed operating and maintenance costs of the boat to see how these amounts will impact your monthly expenses.

In addition to your income, the lender may also look at your overall net worth. Why? Your net worth may be considered for stability and as a secondary source of repayment should you lose your job.

Things to Consider:

The Down Payment: The down payment is based on the age, type and price of the boat you are buying, as well as your own credit profile. Typically, marine lenders offer financing with down payments in the 10-20 percent range. Manufacturers and dealers may offer a special program that could allow you to qualify for less on anew boat.

Longer Financing Terms: Very often, a marine lender will offer longer financing terms, which are more attractive than those offered by lenders not actively making boat loans.

Lower Monthly Payments: Because boats have longer life cycles than cars, a marine lender usually extends longer terms on boat loans--which means monthly payments are likely to be much lower than you had expected.

More Electronics and Extras: In addition to financing your boat, a marine lender will allow you to finance optional equipment, electronics, extended service plans and life/disability insurance coverage. By financing everything with one loan, buyers can usually afford a newer, larger, or more powerful boat and all the gear that it takes to make boating safer and more enjoyable!

Sales and Personal Property Taxes: Although this varies by state, most new boat sales are subject to sales and or property taxes; used boat sales may also be taxed in entirety or by varying methods. Lenders will require proof of payment of sales tax to finalize any loan process.

Is Your Boat "Loan Worthy?" A qualified marine lender want to make sure you're getting your money's worth with your new boat. The lender will research the market value of your boat through price guides, comparable boats on the market, and discussions with dealers or yacht brokers about the boat. In addition, a marine survey by a professional marine surveyor is often required. All this is done to verify that the selling price reflects a realistic market value of the vessel, and that the lender is comfortable with the loan-to-value calculation.

Loan Closing and Funding Congratulations! Your loan has been approved, and all that's left is the closing. As in real estate lending, this session deals with the paperwork and signatures. The dealer, lender or financial service company will guide you through the process smoothly and professionally. Twenty or thirty minutes of review are what it usually takes before you take delivery of the boat.