THE STEPPING STONES
If you’re looking to buy a different boat, and you don’t have a boat loan
now, what should you do to get financing for your new dream boat?
CREDIT CHECK: The first order of business is to get your credit
in order. Just as with any other loan, the closer your credit score is
to 700 and higher, the better the rate you’ll get.
GET PRE-APPROVED: As with a home loan, you can get your
paperwork together now to make sure you’re at the top of the
queue when you find the boat you want.
BOAT LOAN BASIC: As with real-estate loans, there are many
options. A fixed-rate, fixed-term, simple-interest loan is the most
common, with the same monthly payment for the life of the loan,
and probably the best option as long as rates remain low.
FOREVER YOUNG: It’s harder to get good rates, or any financing
at all, on older boats. That 30-year-old wooden dock queen might
look like a diamond in the rough to you, but it probably won’t to your
lender. “In the early ‘80s, the longest term you could get on a boat
loan was about 15 years,” says Parkhurst. “Most banks won’t offer
more than 20 years. On smaller boats you can’t get that long of a
loan, but on larger [more expensive] boats, you can. For most banks
you’d need to borrow at least $75,000 to get a loan of that length.
So, if you’re borrowing less money, it would probably be a shorter
term. Not just on new boats. You can get 20 years on a used boat as
long as it’s within 15 model years, but that varies a lot with banks.”
DON’T BE FOOLED BY THE ADS: You may see rates advertised
as low as 3. 99 percent, but there usually will be some small print
that makes that loan less attractive. The loan period might be only
seven years, for instance, or not valid on boats over five years old.
TO HELOC, OR NOT? Thinking of using a home-equity line of
credit (HELOC) set to prime to buy your boat? This might work if
you have equity in your home, and you plan to pay the boat off
while interest rates remain low. But, Parkhurst says, “many people
don’t have equity in their homes anymore.”
YOUR BOAT AS A SECOND HOME: A boat can qualify as a second-home interest deduction if it has a berth, head, and galley. So
buying a boat just large enough to have these features could offer
a tax advantage. There’s an overall limitation on the second-home
deduction; you can only deduct two homes, and it can’t be more
than $1 million in loans. If you count the HELOC, it’s $1.1 million.
DON’T COUNT YOUR CHICKENS TOO EARLY: So you’ve
secured the loan and found the boat you’ve wanted. Hang on. An
unexpected outcome of the downturn is sales falling through at
survey, because the boats were not well-maintained. A person with
financial problems tends to realize they’re having them one or
two years out, and while they might be making payments, they’re
not winterizing or maintaining the boat, or using it because gas is
expensive. Generally the boat is in one place, the buyer’s in another,
and the financer is in a third. The financers report that they’ll often
get a call from someone saying they’re flying down to look at a boat
in Fort Lauderdale, for instance, and they’re pretty sure they’ll be
putting an offer on it, but then when they see it, it’s not what they
thought it would be.
DEALER FINANCING? For a smaller loan, under $25,000, the
dealer-financed loan may be the way to go. Generally, the smaller
loans are done on the indirect dealer-finance model. Be aware,
though, that some dealers make more on financing than on the
boat deal, so before signing on, compare rates and extras in closing costs against what you can get from a lender.
MOVING ON UP: No matter how good your credit score is, if you
have a boat loan, most banks may give you a pre-approval for a
loan, but they won’t let you apply for another one while you still
own the first one. In other words, you’ll need to sell your current
boat and pay off the loan on it before a lender will approve the
loan on your new boat.
REFINANCING FOR A BETTER RATE ON YOUR CURRENT
LOAN: It’s not all gloom and doom because refinancing may be
available to you at good rates. BoatU.S. and some other lenders
may offer you a better rate on your current loan, with the same
terms as if you were starting a new loan.
WHAT ARE THE TYPICAL CLOSING COSTS? As with any
loan, there are some involved, but they vary. Check with your
lender as to theirs.
CALCULATING YOUR MONTHLY PAYMENT: Wondering how
much of a loan you can afford? See our online calculators to compute monthly payments. Your lender will also review your debt
ratio and other criteria. www.BoatUS.com/BoatLoans
it’ll be easier for them to get a loan.”
The second big shift may be toward
smaller boats as they become more and
more popular. “There’s some evidence to
show that smaller boats are selling better this
year and larger-boat sales are lagging,” says
Parkhurst. “There are certainly lots of people
who want to boat, but they’re more sensitive
to the costs surrounding it. Hopefully as the
DON’T FORGET VALUE CHECK!
Our free service gives you a fair-market valuation on a boat you’re
either selling or hoping to buy.
While no one can see into the future,
it’s still a buyer’s market for boats.
economy strengthens and confidences go up,
boat sales will go up, too. The reality is about
one-third of the manufacturers and probably
about a third of the dealers went out of busi-
ness during the recession, so the market is a
lot smaller than it was pre-recession. I think
the manufacturers who made it through
realize they’ve got to build a more afford-
able boat going forward. Instead of trying
to put all the bells and whistles into the
boats, they’re much more focused today on