Boat Financing: Part I
You’ve been searching for just the right boat for who knows how long and finally you’ve found it. It’s the right type and style, the length is good, it has all the features you need, and your spouse or significant other says “buy it!” Now what? Pay cash, borrow, get Uncle Archibald to give you the money? Trading in the kids is not an option. Often times it simply makes sense to borrow. So let’s look at the boat lending process.
Which Lender — Boat Loan Sources. It used to be that you got a loan from your bank or savings and loan, but now the options for borrowing are far more numerous and competitive. Banks compete with marine lenders, mortgage companies, other financial service companies, dealer finance programs and more. All of these have sprung up in response to the tremendous growth in boating, and the discovery that most boat buyers tend to be very good credit prospects. So, the options for financing are varied.
Banks and Credit Unions. Whether local, regional, national or association related, are the typical place most of us go for a loan. Many banks and CU’s are now members of the National Marine Bankers Association (NMBA) and offer boat specific loan programs. As with any loan, the rate and term are primary considerations in making your choice. Ask about bundling multiple loans at your primary bank in order to get the most favorable rate. Often times local banks—your bank—wants your business and will work with you on an optimum loan package.
Financial Service Companies and Dealer Program. Here’s another avenue to investigate. You can find advertisements for many different marine lending specialists in the major boating publications, and most have very comprehensive web sites. If you are buying from a dealer or through a boat broker they may have a lending department or specialist to help you pick the right loan path and set you on it, and there may be specific advantages to having the dealer help you with a loan. But again, ALWAYS compare rates, terms and the finer details to make sure the loan fits your financial profile and is in your best interest. Lenders are required to explain the complete details of any loan you are considering, so ask questions—there’s no such thing as a dumb question. If any red flags go up in your head, don’t’ ignore them.
Loan type. The most common loan type, and the simplest, is the fixed-rate/fixed term loan. The monthly payment and life of the loan are set in the beginning and will not change. A variable rate loan is a little trickier, often offering a low entry interest rate and no adjustment for a set period, but borrowers need to watch for rate adjustments which can rapidly make the loan unaffordable. One option that can alleviate that trouble is the conversion of a variable rate loan into a fixed rate, usually at a cost. Then there are balloon mortgages. Here the borrower pays interest for a set term and then pays the entire balance at the end of the term. This can be a useful loan if you anticipate selling your boat after a specific number of years.
That’s a quick introduction to the where and what of boat financing. Click here to go to our second article on the actual boat loan process.