People are often advised to follow their dreams but if your dream is to spend lots of beautiful days out on your boat in the middle of a vast body of water then you may have been asked once or twice to take a break from such a costly dream.
Whether new or used, boats are generally expensive to acquire with prices ranging from $12,000 to $10,000,000. While this may look impossible to acquire, there are ways to go about obtaining that boat of your dreams without going broke.
Boat financing allows you to get the boat you want without exhausting all of your savings. The process entails getting a loan to purchase your boat and then paying back in instalments and at an interest rate. This can be done by getting a loan from your bank, arranging a finance plan with a boat dealer or getting a marine broker.
Boat dealers are usually experienced with setting up loans since they do it every day. They often have established relationships with lenders and will try to make the transaction as fast as possible.
Marine brokers are usually individuals who are skilled at acquiring loans mainly for boats. Boat financing is quite different from other types of financing and marine brokers are specialists. They know the ins and outs of obtaining boat loans and use their skills and networks to obtain the best options for their clients.
Bank loans are quite common and most people usually go for them. Some lenders go this route by taking home equity loans also known as a second mortgage on their houses in other to acquire loans to buy the boats of their dreams and this will usually earn them lower interest rates and reduced taxes. The problem with this, however, is that it makes the transaction more complex and acquiring the loan will take longer than usual. Also, this is a risky route as a default in payment could mean the loss of your home.
Some factors may affect your ability to qualify for a loan at a bank or from a private lender; these include your job stability, credit rating, net worth and debt to income ratio. You will be asked to provide all of the information needed after you have applied for the loan. A credit score higher than the upper 600 will usually be sufficient to get you qualified for a boat loan.
There are two types of loans you can acquire through boat financing; secured loans and unsecured loans.
Secured Loans
In this type of boat loan, the boat is used as collateral. The loan limits here are usually higher, also, the interest rates are lower and you will get a longer repayment term. This type of boat loan will not affect your credit score.
After making a down payment for the boat, there will be an arranged instalment plan. This plan will include details about the amount to be paid and at what intervals.
The risk associated with this loan type is that you can lose the boat if you default on making payment, also, you will need some amount of money to make the down payment.
Most required down payments are usually between 10% and 30% of the overall loan, although, the down payments are usually dependent on the boat age, loan term and loan amount. Nonetheless, 10% -30% as a down payment is no trivial amount considering the cost of getting a whole boat.
Unsecured Loans
Most times, people go for an unsecured loan for several reasons. This plan does not require any collateral, thus, you will not lose the boat should you default on payments. This plan does not require a down payment; this means that you can acquire this loan without having to pay anything at first.
On the other hand, this loan will be accompanied by huge interest rates which will range anywhere from 6% to 36%. Also, the loan usually has a shorter term compared to the secured loan. Here, the loan term ranges from two to seven years.
Although you may not lose your boat, there are still other consequences for defaulting on an unsecured loan. This includes significant damage to your credit score, attorney fees if the lender takes you to court and wage garnishment.
Tips to Note When Taking a Boat Loan
- Examine your credit report: Before applying for a boat loan, one thing you will want to do is check your credit report. Ensure the report is correct and obtain your current credit score. This will enable you to know beforehand your chances of qualifying for the loan. You may need to take time to increase your credit score before applying for the loan.
- Have and compare options: It is important to “shop around” a bit when attempting to obtain a loan. You should apply at multiple lenders to get multiple offers. This will give you the chance to compare all your options and pick the one which will be best fitted to your financial needs.
- Review the terms carefully: Before signing off on a loan it is important to ensure that you’ve read up on the terms carefully. You may need to seek out the help of a professional to fully break down all of the complex parts. This will protect you from agreeing to deals that may bring terrible repercussions along the way.
- Consider your Budget: The total cost of owning a boat goes beyond the monthly instalment plan.Other expenses include maintenance, repairs, taxes, regulations, slip fees, fuel and insurance. Thus, before applying for the loan, it is important to ensure that you will be able to cover the other expenses associated with owning a boat.
- Conduct a marine survey: This is important when you attempting to purchase a used boat. Here, a surveyor will inspect the parts of the boat to determine its value, repair needs and whether or not it is safe to bring on the water.
- Request for the closing costs: Before signing off on a loan, ensure to ask your lender for the closing costs. Closing costs are fees that are charged on loans, they include processing fee, registration fee, and sales tax. It is best to know just how much you will be paying beforehand, so as not to be blindsided.
- Use a boat loan calculator: It is important to estimate the total cost incurred and the amount of money to be repaid. A boat loan calculator is an effective and precise way to estimate the number of monthly instalments you will be required to pay. The calculator requires an input of the total loan amount, interest rate and the loan term. This will help you know if the monthly instalment fits into your budget or not.
- Hire a broker: A marine broker is an expert who assists clients in acquiring loans for the purchase of their dream boats. Marine brokers will ensure you get the best possible options, will offer financial advice, and will make the entire loan acquiring process quick and seamless.
Why Hire a Broker?
Hiring a broker has so many benefits both while attempting to acquire a loan and in the purchase of the boat. A marine broker will understand all of the complex portions within the loan contract and will assist their clients in making the right decisions.
They are experts in the procurement of loans for the purchase of vessels. They have unique relationships with banks and private lenders from years of experience and this helps them in being able to obtain the best offers for their clients.
Also, they take on the responsibility of connecting clients with lenders; they represent and negotiate on behalf of their clients, making the whole process much easier.
Marine brokers provide their clients with options; thus, their clients will not have to go through the trouble of finding multiple lenders. They also provide skilled financial advice to their clients on which offers are best suited for their situation.
They understand the laws associated with the purchase of vessels and thus can provide advice on the transfer process of the purchased vessel. Also, having a broker will reduce the risk of having incomplete paperwork. They will assist in tracking down all of the paperwork needed to take full ownership of the vessel.
Marine brokers will assist in setting up an escrow. An escrow is a legal contract where the money meant for the purchase of an item is kept with a third party until all the conditions of sale are met. This will ensure that clients get exactly what they were promised.
A broker can also assist in finding the best insurance policies for their client’s vessel. Brokers are generally knowledgeable in the business. Thus, they will be able to make suggestions regarding the best insurance policies for their clients.
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