Financing a boat is like a Las Vegas magic act. At first
glance it's mystifying, but once the nuts and bolts have been
explained, it's a breeze to make that Bengal Tiger disappear.
With that in mind, let's do away with the smoke and mirrors and
get to some of the basics of boat financing.
Choosing a Lender
You'll be pleased to learn that today's money lenders pride
themselves on offering instant gratification. They know once
you've settled on a particular boat, you want to be on the water
enjoying it within the week. So bankers approve, or disapprove,
boat loans in less than an hour. Lenders with an Internet
presence can decide your fate in minutes, often 24 hours a day,
seven days a week. You just fill out and submit the online
When selecting a lender, check to see if they have developed a
specialty in boat loans. This is particularly important when
buying a used boat. A boat savvy lender will be familiar with
pertinent law, such as possessory interest and mechanic's liens.
In other words, the lender can save you the nightmare of buying
a boat that doesn't have a clear title or a deadbeat's boat that
could end up costing you thousands of dollars to pay off yard
fees and marine mechanics.
Boat savvy loan officers also know which guidebook to reference
and how to add value and subtract for options or damage. For
example, these officers know to depreciate a saltwater boat from
10 to 15 percent off its listed value. The NADA guidebooks tend
to be used by lending institutions and insurance companies when
establishing a boats value. Dealers, on the other hand, tend to
use the BUC books with their higher retail prices.
Shop around for the best terms by contacting several lenders.
Compare interest rates, required down payment and term of the
loan. If you can afford higher monthly payments, the 10 year
loan is often a wiser purchase than a 15 or 20 year note. The
reason is simple. Statistically, you're likely to want to sell
your new boat for a bigger one in about three years. On a
long-term note this means that you would not yet have whittled
away any of the principal by the time you are ready to sell.
Besides, shorter term loans cost less over the long haul.
Boat Loan Considerations
A standard down payment on a boat is 20 percent. In some
situations, however, the lender might require 25 percent.
Obviously, you must be creditworthy. With that in mind, anyone
who intends to borrow money should first check their credit
history. Ask a prospective lending officer which of the big
three credit reporting agencies will issue the report on you.
Get a copy of your report from that credit bureau and scrutinize
it. If there are any errors or outdated information, get them
corrected before you apply for your loan. If you have any
delinquent accounts, bring them up-to-date.
Besides paying your bills on time, other factors a loan officer
will consider are your job stability, salary, disposable income
and the ratio of installment debt to income. Lenders will look
at your debt to income ratio to ensure that your monthly loan
payments for home, second mortgage, car, student loans and boats
will not total more than 30 percent of your adjusted gross
You should also know some lenders require tax returns with all
attached schedules. Moreover, if you own a partnership or
corporation, they'll need the last two years or corporate
returns, again with all schedules. Also plan on providing
statements for checking accounts, money market funds and any
other bank statements that can prove liquidity.
Boat Loan Survey Says
A professional survey is an indispensable part of any used
boat sale, and any lender worth his salt requires one. That's
because a surveyor won't look at your prospective dream boat
with rose colored glasses. Instead, he will see defects you're
blind to. Surveyors charge by the foot, with costs ranging from
a couple hundred to thousands of dollars, depending on the size
of the boat and where the boat lies. The expense of a
pre-purchase survey could save you many thousands of dollars
later, plus the aggravation of knowing you were taken for a
ride. If that happens, you'll end up hating the boat, not loving
As the buyer, you're responsible for hauling and survey fees,
but you'll be happy you spent the money when the surveyor
discovers an osmosis-blistered hull or delaminated deck core you
hadn't noticed. Also know that boats that do not survey well are
hard to finance and even harder to insure.
When considering how much of a loan to apply for, keep in mind
that no matter how well optioned a boat, there remains a
boatload of gear that's not included in the purchase price. So
figure on adding a couple hundred dollars or more to the loan
for preferred accessories. And don't forget about an extended
service contract for the engine and drive as well as the cost of
insurance. All these things cost money and should be included in
Finally, don't forget the tax consequences. If your boat has a
berth, a permanent head and galley, odds are very good it
qualifies as a second home. That means you can write off the
cost of interest on your income taxes. Unfortunately, portable
heads do not qualify for this write-off.