Financing A New Or Used Boat
Financing anything is a big deal, but certain pieces of property can be trickier than others. Take boats as a prime example. Financing a boat is a particularly risky transaction for lenders for several reasons.
First, you have the reality that boats depreciate very quickly. Then, you have to deal with the fact that, as a non essential item, boats are the first bill consumers will stop paying on if times get bad. Finally, consider the fact that a boat is easy to hide, which means that it is tough to repossess.
Add all of this stuff together and you get a loan that is much tougher to qualify for than your average automobile loan. That does not however mean that you can not get boat financing. This just means that you need to have your ducks in a row to make the process go smoothly. Here is what you need to do.
Check Your Credit Score
The first step in the boat loan process should be to check your credit score. Ideally, you are keeping constant tabs on your credit, but if not, make sure to pull a report from every bureau.
Pulling your credit can help you address any mistakes that might be present, which is why you should pull this report at least a month before you intend to apply for boat financing. If there is an error, you will need to dispute it and the credit bureau will have 30 days to investigate, so do this step ASAP.
Another benefit to pulling your credit report is to see where your credit score really stands. When you apply for financing, this will let you know what rates you should be able to qualify for. In addition, if you find your score could use a little boost, you can work on it a bit before applying for credit. You might be surprised at what paying down a few credit card balances can do for your score.
Pick A Monthly Payment
Once your credit score is in line, you need to think about how much of a boat payment you can afford. This will determine what price range you should be looking. If you can only afford a 300 dollar a month boat payment, no use looking at 30,000 dollar boats.
When choosing a payment, be honest with yourself. You do not want to be boat broke, spending all of your disposable income on your monthly boat payment. Make sure the payment that you decide on leaves you plenty of money to meet all of your other credit obligations and to pay for your extracurricular activities. You are going to want to take this boat places after all.
Take the monthly payment that you decide on and use it to determine your budget. If you have a $200 a month payment, you should set your budget at around $10,000. If you have a $400 a month limit, set your budget at $20,000. Determining a boat budget now will keep you from getting heart broken if you fall in love with a boat outside of your budget.
Plan Your Down Payment
Finally, you need to come up with a down payment. With a boat loan, you will need to come up with 10 to 20 percent as a down payment. A down payment this size is often optional with home loans and even auto loans, but crucial with a high risk loan like a one for a boat.
It all comes down to risk for the lender. Boats depreciate quickly and a large down payment is what a lender will need in order to get you approved with the best rates. Can you get approved with a smaller down payment? If you have great credit, it might be an option, but your interest rate will suffer.
Look At Alternate Financing
So, what happens if you do everything right but are still not happy with the boat loan offers that you receive? You an always look at alternate ways to finance your marine purchase.
Perhaps the best alternative to boat financing is a Home Equity Loan. This type of loan would allow you to tap into your home’s equity to pay for your purchase. The best thing about going this route would be the low interest rate. Mortgages traditionally have lower interest rates than unsecured personal loans, and since your loan would be secured by your home, it would be the cheapest way to finance this type of purchase.
Consider Other Expenses
Your financing is not the only cost of boat ownership, and failing to consider the other costs has been the downfall of many a boat owner. Before you commit to a boat, be sure to look at all of the other expenses.
If your financing a boat, your lender will require that you maintain boat insurance. In addition, most states will require that you are insured to operate your boat, so there is no way of getting around being insured.
Most small crafts will cost $300 to $500 a year to insure. Larger vessels, like yachts, can cost much more, anywhere from 1 to 3 percent of the boat value.
If you want to keep it running, expect to cough up some big bucks on maintenance. Maintenance costs can be all over the board, and it depends greatly on the type of boat you have and where you operate it. The bigger the boat, obviously the more it will cost to maintain it. In addition, if you boat in harsher environments like salt water, maintenance will be higher. In general, expect to spend at least $500 a year on boat maintenance, with that cost going up dramatically for larger boats and those operated in harsh environments.
Unless you have a house with acreage, you will likely be paying to store your boat. Even an average sized boat will cost $100 a month to store on a lot and with larger boats, you can easily double that amount. Paying to dock your boat at a marina is another option, but it will be considerably more. It does come with the advantage of easy boat access however.