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It is not unusual for many boat-purchase deals to almost fall apart because of the buyer's inability to obtain suitable financing - despite being qualified for the loan!
Many were ultimately successful in finding financing because they were determined to get the boat of their dreams. But what happened the first time around? It’s important to work with a marine finance specialist – one whose business is boats – to assure the best experience. This article explains the boat loan process and strips away the mystery to help readers obtain favorable financing.
Boat Loan Sources.
Boaters are especially fortunate to have a whole array of dealers, banks, credit unions and financial service companies available to arrange financing for their boat purchase. And it’s important to choose the right one. The National Marine Bankers Association (NMBA) is an organization that provides education and support to the marine lending community. Because these lenders specialize in boat loans, they understand the product and are likely to best serve your needs. When you begin your search for a marine lender, it would be smart to ensure that they are an NMBA member.
The Bank.
Many local, regional, and national banks are members of the National Marine Bankers Association and offer boat loans directly to their customers. Start with your own bank and either 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. Some banks advertise in boating magazines and publications. They clearly want your business and will have boat-savvy people available to address your needs.
The Credit Union.
If you are a member of a credit union that does boat loans, be sure to contact them. They usually have attractive rates for their members, but some may not be aggressively looking for boat loans.
The Financial Service Company.
Financial service companies maintain relationships with local, regional, and national lenders, giving them broad access to finance programs. They are experts in the marine lending field, and many are members of the NMBA. You will see their advertisements in many boating publications, so call for rates and terms and get an idea of anticipated application turn around and funding time. Many financial service companies have access to extended mechanical warranties and titling or documentation services as well.
The Boat Dealer.
If you're buying your new or pre-owned boat from a dealer you'll usually get a real helping-hand with the loan process. Many dealers have a Finance Manager on their staff who can handle the whole transaction for you, from assisting with the application right through to the loan closing and vessel titling.
Other dealers may not have a finance specialist on their staff, but they may employ an outside service company that handles all the same tasks, and they will arrange all of the details seamlessly.
Some Dealers may simply send you to a bank or financial service company they refer business to, to have them handle the transaction.
There are many advantages to financing your boat through the dealer:
- they usually have several finance sources
- they have access to extended warranty programs that can be included in your financing
- they may offer special finance programs on certain brands or models that can be very advantageous to you, such as ninety days to the first payment, no interest for several months, or lower rates for a limited time
The Dealer will be happy to explain the details of finance programs designed to help you buy and pay for your boat on very favorable terms.
The Boat Broker.
Many individuals employ a broker to help them find the perfect boat, negotiate the sale, and complete the purchase process. Since his goal is to complete the sale transaction, your broker will certainly be very aware of finance programs and available resources.
The Application Process.
Some lenders will require a full written application, while others will take the application right over the phone. This primarily depends upon your loan amount – the more you want to borrow, the more details need to be provided. The important thing to remember is to be as complete as possible and you will find the process will move along much more quickly. Include complete name, address, phone numbers, employment details, income as requested, details on home ownership (if applicable) and all monthly debt service.
When income verification is required, depending on the size of your loan request, you will probably be asked to provide copies of your tax returns for the past 2 years. You may also be asked to prepare a personal financial statement, which is simply a snapshot in time of your assets and liabilities and shows your net worth. The information requested is necessary to provide the best loan decision, so your cooperation is a plus.
Have all of the boat information available for the application, such as year, make, model, power, optional equipment and any upgrades. Identify the total cost, which will include
- the purchase price
- any equipment upgrades or additional accessories you may be considering
- any sales taxes that must be paid at the time of purchase
- registration, title, or documentation expenses.
You will be signing your application, which will include your authorization to have the prospective lender or financial service company examine your credit. If you do the application over the phone you will be verbally authorizing the credit review.
The Loan Underwriting Process.
The boat loan decision process is, really, quite simple and straightforward. There are two major aspects that are examined; You and The Boat.
You:
Your credit history will be reviewed for continuity and satisfactory repayment of present and past credit obligations, looking for loan amounts comparable to your request. Of particular interest will be the level of revolving debt (credit cards) you have and the limits of your credit cards, expressed as available credit.
Another important factor is debt to income ratio. The lender will look at your present monthly obligations and add the monthly payment for the boat loan (they also may add presumed operating and maintenance costs of the boat) to determine your monthly debt. They will compare this to current income as stated on the credit application or verified in the tax returns. Your net worth may be considered for stability and as a secondary source of repayment.
The Boat:
The process here is for the lender to be satisfied that the selling price reflects a realistic market value of the vessel, your down payment meets their guidelines and is in line with your credit profile, and they are comfortable with the loan-to-value. Other factors come into play, such as the type and age of the boat you are buying.
The lender will research the market value of your boat through various sources that include price guides, comparable boats on the market, discussions with yacht brokers about the boat and what other comparable products are selling for, and a marine survey by a professional with whom the lender is comfortable.
OK - You're Approved.
Whew! Well, actually, the whole process took just a few hours, but it can be worrisome. After all, this is your boat we're talking about! Your recreation, your pleasure, your enjoyment, your free time, your passion!
What kind of loan did you end up with? The most favorable is a fixed-rate simple interest loan, but there are other types of loans out there:
- Variable rate loans with low introductory rates – take a good look at the adjustable period to be sure you are comfortable taking the gamble. How long will you really own the boat? If the loan adjusts sooner, what does that do to your payment?
- Balloon payment loans – these require you pay the entire balance in a stated term. Again, how long will you really own the boat? If the balloon payment is due sooner, will you have the funds (or the desire) to pay off the loan?
Finally.
The loan closing and funding. This is just paperwork, and your dealer, lender or financial service company will guide you through the process quite smoothly and professionally. Twenty or thirty minutes of detailed paperwork to sign and the boat is yours!
In Closing.
It's all about the Boat! Just because the process seems involved, don't lose sight of the objective. Those sweet days on the water are worth working towards and working for. |
