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
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
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
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
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
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
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.