Getting That Loan

What to know before you buy

Published in the January 2012 Issue Published online: Jan 14, 2012 Feature
Viewed 219 time(s)

In today's economy, it's more important than ever to be well-educated on the ins and outs of boat buying. Whether you're a first-time buyer or you're interested in purchasing your third houseboat, there are important facts and principles to keep in mind when making this important decision. We spoke to Helen Dolen, vice president at Monticello Banking Company in Kentucky and Anna Brown from Progressive Insurance, and drew on their experience and insight into this industry to pass their knowledge along to you.

Prep Work

If you live in a thriving boating market, there is likely to be a multitude of options when it comes to getting a marine loan. While some lenders offer boat loans in addition to their more traditional home and auto offerings, others specialize in this business, training their staff in the details of the industry.

It's a good idea to compare rates and terms offered by lenders in your area before making a final decision. Options can include banks, financial service companies and credit unions. Check to see if your bank is part of the National Marine Bankers Association (NMBA) by visiting www.marinebankers.org. If you approach your home institution about opening another line of credit with them, that can cut down on the paperwork and time required to complete the deal.

Financial service companies work hard to maintain relationships with local, regional and national lenders, which give them special insight into the economic situation and financial trends. Many of these companies specialize in marine lending, so look for their advertisements in boating publications.

Credit unions are an attractive choice to boat buyers, as they give special interest rates to members and often have specialized marine lending staff on site to help you with your loan.

Qualifications

According to Dolen, not much has changed over the last couple of years when it comes to qualifying for a boat loan.

"If a buyer could get a loan before the recession, they can get one now," she said. "As long as buyers meet the guidelines and have the ability to repay the loan and keep their credit in check, then there shouldn't be a problem."

That said, there are certain red flags that may appear in a credit history that will usually disqualify you from getting a loan. While a missed payment or two five years ago probably isn't enough to earn a rejection, if you have a missed payment two or three years ago, that is recent enough that it will give the lender pause. Keep up on any recurring payments you make, including those for a car, home or credit cards.

One automatic disqualifier for Monticello Banking is bankruptcy. Dolen was very clear in expressing this policy, so if you ever plan on buying a sparkling new houseboat, avoid bankruptcy at all costs (or be prepared to pay cash).

Money In Hand

Dolen suggested buyers put 20 percent down on boat purchases, a number that applies across the board. Whether it's a 15-foot pontoon boat or a behemoth 100-foot houseboat, that 20 percent number is a smart starting point for buyers.

Dolen also recommends that boat buyers obtain a loan for the price of the boat they want before signing anything with the seller. While many purchasing contracts include the clause "dependent on financing," which would mean any down payment would be returned in the event a loan cannot be secured, some contracts do not protect you in this way.

"Sometimes a buyer will lose money they've paid on a boat," Dolen said.

So do your shopping early and don't sign anything until you have the money available to purchase the boat. Even if your credit is impeccable and you don't think there will be a problem with the lending institution, it's better to be safe than sorry.

Be aware of the sliding scale of payment amount, interest rates and loan length: the longer the loan, the smaller the payments but the more you'll pay in interest over the course of the loan. And in the reverse direction, the shorter the loan, the larger the payments, but you'll pay less in interest.

For example, a $200,000 loan with five percent interest that is paid off in 16 and a half years means you'll pay $1,500 a month and make around $90,000 in interest payments over that time. But by lowering the payment to $1,000 per month on the same loan, you'd spend 35 years to pay it off and end up paying around $230,000 in interest.

Take the time to do the math when deciding how large or small you want your payment to be.

Life After Purchase

Buying a new boat always comes with a nice, fuzzy feeling, but don't let that get in the way of some common sense. Be sure you can afford additional fees associated with boat ownership in addition to a monthly payment. Insurance is a necessity, and can range in price and coverage quite a bit.

Brown suggested taking a good, hard look at your boating lifestyle before determining what type of coverage is right for you.

"Decide whether it's a passion or pastime," Brown said. "Boaters will spend more time on the water if they know they've chosen the right coverages and services for their vessel."

Will you be docking your boat at a lake? Don't forget to factor in these fees when determining whether or not you can afford a boat. Other factors to keep in mind are potential repairs and aftermarket purchases.

There can be a lot to keep in mind when buying a houseboat, but by sticking to these concepts, you can enjoy years of worry-free time on the water with friends and family, and isn't that what this is all about?

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