FINANCING 101A: There are many, many ways to finance a boat,
from the traditional to the creative. Some traditional sources for both
new and used boat financing are direct loans from banks, finance companies,
credit unions and savings institutions. Often the Yacht Broker you are
working with will refer a marine finance company. As in any loan, key items
to you need to be aware of are the money you need to contribute, interest
rates, terms, and the small print. After you have decided on the source
of the boat loan you will need to be "approved" which means do you have
the wherewithal to pay it back. The paperwork can be called a "loan application",
"finance application" or "credit application" and is the lending sources
information about you. Take the time to complete this form completely.
This is also a good time for your annual credit report checkup. Most lenders
will require proof of income, credit information and possibly your first
born and other bits and pieces of personal information. Creative can range
from "asking Daddy" to "partnerships" to "hocking the family jewels if
they're still worth anything". Don't try most of these at home.
The interest rate you will pay can be all over the board and can
be either fixed or variable. If you want to know what your monthly payment
will be and have it stay that way, find a fixed rate loan. If you are buying
a river boat and this is the only loan you can get, go for the variable
rate loan. which can have a little lower start up interest rate but these
"go with the flow" so to speak interest rates often do rise. The other
choice you may have is whether the interest is calculated on a per day
basis, i.e., you pay for the time you borrow the money or if it has been
calculated over the life of the loan. Also, be aware of any early payoff
penalties or fees. Let’s say you find the Lost City of Atlantis and want
to pay off your loan, or, more realistically, want to go cruising. Will
your lender allow the boat out of US waters and if not, can you pay off
the loan early without additional costs? After all, they thought they were
going to get you to pay interest for millenniums and it’s only been a lifetime
so far. And ask what it will cost you to get into the loan, are there "points"
which means a percentage of the loan to be paid as a loan origination fee,
in other words they stick it to you with "points".
Determine how long you want to be pay for the boat, the longer the
length of the note, the longer it will take you to acquire equity, which
is the part you own. This can get complicated depending your cash situation,
your income and how long you usually stay enamored with a particular boat.
The "term" of the loan usually ranges between 5 to 25 years for most boats.
The amount of down payment can depend upon the lender, how much you are
financing (the minimum amount being financed by a lot of lenders at this
time is $25,000), the age of the boat, what you plan to do with it, if
it is registered with the state in which is home ported or Federally documented
(which a lot of lenders are now requiring) and where you are going to be
taking it, and can be as low as 10% or as high as 25%.
I found that it was much more difficult to obtain financing as a
‘liveaboard" . Finally, one helpful suit pointed out that it is much more
difficult for them to repossess someone’s home than their boat. Be aware
of this when applying for a loan to finance in a liveaboard situation.
However, do know that many larger self-contained (a head, galley and sleeping
accommodation, but check with your local taxing authority) may qualify
as a "second home" interest tax deduction. Check with your tax accountant
because if you claim the boat as a second home you have to give up the
deduction for the villa in Cannes.