Here's what you need to know when seeking a loan for a new, or new-to-you, boat.
Reading this one story will not make anyone an expert in the field of marine finance. But reading this story will make people smarter when it comes to securing yacht financing, because we talked to the real experts and elicited their feedback. Their words of wisdom distilled down into 11 key points, which follow. Read on, and then reach out to an expert to help you make the right choices.
1. Rates Vary
Current percentage rates for marine loans can be as low as the 4s and 5s, or as high as the teens. The age of the boat, the down payment, one’s credit score and the terms of the loan all play into the final rate. Prime can be as low as the 4s, but non-prime can be as high as 14 to 18 percent.
“The best rates for marine loans are on boats and yachts up to 15 model years old [2005 and newer] and on higher-dollar loans,” said Peggy Bodenreider, a Newport Beach, Calif.-based regional sales manager for Annapolis, Md.-based Sterling Acceptance.
She confirmed that some lenders offer discounts for various benchmarks:
• Credit scores of 800 or better.
• Shorter-term loans of seven to 12 years rather than 10 to 20 years.
• Down payments of 30 percent or more.
2. No Comparison
Rates for real estate loans aren’t connected to marine loans. A common misconception is you can look at real estate rates and assume that boat rates are doing the same thing at the same time. They aren’t.
“They’re not the same indexes,” said Michael Bryant, a cofounder of Newport Beach-based Trident Funding, “and they’re driven by volume considerations. Lenders have goals for the year, and they might squeeze their margins or raise their rates to meet those goals. All lenders are in different places, so as a broker, we go where we feel we’ll get the best rates.”
3. Get Specialized
Marine-lender brokers and dealers are the main sources of boat loans. A specialized broker typically works with 12 to 15 lenders across the country, according to Bryant. You also can get a loan through your dealer, which might have a relationship with four or five lenders.
“The National Marine Lenders Association has 61 lender members, 23 of which are regional or national banks and credit unions,” Bodenreider said. “The balance of lender members are loan origination companies, or loan brokers.”
4. Don’t Despair
While lenders offer their best rates for 800-plus credit scores, lower scores are still workable. This comes with a caveat, Bryant said. Lower scores are acceptable, provided you don’t have a history of late payments.
“Lenders look at loans of comparable size and term to see how the applicant has handled high-dollar, long-term credit in the past,” said Bodenreider. “Mortgage loans and other recreational product loans weigh heavily in this category.”
Lenders look at credit depth, which means they expect to see a minimum of 60 months of credit history on a minimum of five credit lines, and at least 12 months’ payment history on each one. They’re also checking to make sure you don’t have a history of bankruptcies, tax liens, collection accounts and other types of negative history.
All is not lost, however, if you have a credit score in the low 600s, or even the 500s. You’ll have to accept less favorable terms, but boat ownership is still within reach.
“Just because you don’t have perfect credit doesn’t mean you can’t finance a boat,” said James Barron, a senior vice president at Bank of the West and its San Ramon, Calif.-based Essex Credit division.
5. A Score Is not a Score
Credit scores can be misleading.
“Banks are looking at FICO scores,” Barron said. “The free consumer credit scores given to consumers are VantageScore, not FICO.”
The three primary credit-reporting agencies also have different scorecards and ranges. Various versions of the scorecards are designed to weigh the probability of default, based on the loan type.
“The lender will use a product designed and customized to the type of loan (you request),” Bodenreider said. “So a credit score for an auto loan may be different than a credit score for a recreational loan or mortgage.”
It’s important to get preapproved. With it, you’ll know your buying power before you start looking at boats. You’ll also avoid a financing contingency in your contract, which means the seller or dealer will have confidence in you as a qualified buyer and will have an incentive to meet your price.
In addition, you’ll eliminate one unpleasant headache: Finding the perfect boat and then playing the waiting game.
“People have this perception that they need to find a boat before they secure a loan,” Bryant said. “They’re underestimating the time it’s going to take to get that financing; it’s more like a mortgage than an auto loan in its complexity.”
7. Money Management
Lenders look closely at how you manage money. Don’t raise your debt load right before seeking a boat loan, and be sure to pay down or pay off high revolving balances. Also, review a copy of your credit report to make sure it doesn’t include any negative items; if you find misinformation, address it right away.
“Lenders will look at your credit card debt and how you manage your money,” Bryant said. “Car loans are easy to get, because lenders are lenient regarding your income-to-debt ratio. Marine lenders are more concerned about your ability to pay.”
Then there is liquidity. If you own a business, for example, and it contains the majority of your liquid assets, move a sufficient amount to cover the down payment and a sufficient amount to cover all of your personal payments, including the boat payment, for 12 months. That way, lenders will see that the money is free for your personal use; if they believe it’s necessary to run your business, they’ll be less likely to approve you.
Don’t forget to unlock any credit freezes, and be prepared to provide documentation for the source of your down payment. If you’re unclear regarding what items that might include, ask.
8. Get Ready
Advance preparation will speed up the approval process. When you meet with a lender, provide the basic parameters of what you’re hoping to purchase: target size, age and price range. Then provide all the required documentation, including credit score, proof of income and employment history.
“What’s interesting to me is that most people don’t give us what we need,” Barron said. “They think of a boat loan like a car loan, but cars are a commodity business. In the marine space, there’s more finesse to it. A boat loan is somewhere in between an auto loan and a home loan in complexity.”
If the lender has a completed application package, the decision process will go much more quickly. In fact, it might take less than a day.
9. Ramped up Due Diligence
A boat is a luxury, and therefore lenders exercise extensive due diligence. Lenders are cautious with luxury purchases such as boats and RVs. Unlike cars and homes, they are not necessities.
“The boat is considered a recreational, or leisure, purchase,” Bodenreider said. “The lender often will require copies of filed tax returns, current bank/brokerage statements, and other documents to determine income, liquidity and net worth.”
Barron agreed, noting, “When we get customer feedback, it’s usually, ‘The paperwork was more complicated than I thought.’”
10. Rising Rates?
Loan rates might be headed upward, but that’s not a deal-breaker. The Federal Reserve Board increased rates four times in 2018, though interest rates on boat and yacht loans are still quite low. Bodenreider said lenders are expecting the Fed increase rates twice in 2019.
“Recreational product loan rates generally move in sync with the Fed changes, so it’s likely we will see boat and yacht loan rates increase up to three-quarters of a percent in 2019,” she said. “A quarter percent rate increase on a 15-year fixed-rate loan only increases the payment $0.13 for every $1,000 — or $13 on a $100,000 loan.”
It will serve you well to find the right professional to represent your interests. Whether it’s a loan broker or a staff member at your dealership, be sure you’re comfortable working with that person and are confident in her abilities. After all, you’re trusting her to guard your privacy and your personal financial information, and to provide the services you need and expect.
If you’re not sure which representative might be the right fit, make some calls or personal office visits. Getting your questions answered ahead of time can save heartache and even some money down the line, because each prospective borrower, boat purchase and qualification process is both unique and complex.
“Just call us and ask, ‘What do I need to do?’” Bryant said. “Regardless of whether or not you decide to use us, we’ll tailor our answers to your situation, give you a good set of guidelines and tell you what you need to know.”