Top Ten Questions Relating to Finance a Boat with Business Manager, Justin Ladd.

Business Manager, Justin Ladd’s, Frequently asked F&I Questions.

1. What is my Payment Going to be?

Anytime something is financed you will have a payment towards the balance (or principle). The payment is broken up monthly and is known as your “monthly payment”. Financing a boat with The boat House gives our customers many payment options to choose from in the finance world. “Terms” refer directly to the number of months or length of time to finance. We offer our customers the following term limits, 10, 12, 15, and 20 years. Some of the longer-term options available are based on total amount being financed. For example, 15-year term or 180 months, require a minimum amount of $25,000 that has to be financed. Any amount over $25,000 can qualify for 15 years of financing. These longer terms were designed to help keep monthly payments affordable. “Rates” are also related to the monthly payment amount. These rates are based on a percentage of the loan principal. So, in reality the higher the interest rates the larger the monthly payment. We have more of a description on rates, what percentages you will likely see in the marine industry, and how they are generated on the “what’s my interest rate” page found here. The Boat House offers many term options. Once approved, we will be able to sit down and fine tune a finance plan that allows affordable low monthly payments, no prepayment penalties and the opportunity to own your dream boat.

2. How is my Interest Rate Determined?

Interest rates in the marine industry are very simple because a boat is classified as a luxury item. A boat is not a necessity like a car or a house. This type of loan is called a Recreational Loan and has its own personalized lenders that deal directly and only with RV and Marine financing. Recreational Loan interest rates are different than cars or houses. Recreational lenders use specific borough reports which can disclose credit history of 10+ years. FICO scores can vary depending on the loan type. Customers FICO Score (credit scores) will directly reflect interest rates available. Having a better credit score will benefit the customer because a “luxury item” carries tighter restrictions. Marine financing can provide many term options. Terms also known as “length of time for the loan” very directly on the amount financed. The Boat House has long lasting relationships with our lenders giving us the opportunity to offer loan terms ranging from 10 to even 20 years. The marine industry is seeing interest-rate’s and 6% range from 6.24-6.99 directly reflecting credit score, history, and the amount financed. Customers can see rates on the higher end the shorter the term of the loan. Reasons for this is because the longer the loan and amount financed the more opportunity for interest to accumulate. So, if rates are the main concern it makes sense to choose the longer-term options available to you.

3. What is Simple Interest?

There are two types of interest, Compound Interest and Simple Interest.  Compound interest is calculated on the loan amount PLUS the accumulated interest. This means the customer will be paying interest on the interest. Simple interest is exactly how it sounds, much simpler. With these types of loans, they are generally paid back in monthly installments. These payments get broken up into separate parts. One part goes towards interest and the rest gets credited to the loan balance. In the beginning of the loan, the customer will pay more in interest because the loan balance is at its highest. The more the principal balance goes down, the more the monthly payment will be divided towards principal and not towards the interest. In marine lending programs any additional payment over the minimal monthly payment schedule will get credited directly towards the principal balance NOT towards interest. Simple interest is calculated by taking the loan principal and multiplying it by the interest rate and then multiplying it by the term of the loan (in years) which will then give you the interest charges over that time period.  So Principal x Rate x Term = Interest charges. Now there are other ways to help determine interest charges over a monthly or even a daily basis. To calculate the daily basis simply take the loan principal and times it by the interest rate, then divide by 365.

Simply Interest Formula: Principal x Rate x Term = Interest charges

4. What is a Good Credit Score for Purchasing a Boat?

When applying for a loan you will have the opportunity to have different options available in order to pay back the borrowed amount.  The customer will see different interest rates, terms and down payments options offered to them based off their FICO credit score and credit bureau. Credit scores range from 300-850.  Having a better credit score will help a customer by giving them the premium loan options available, but in the Marine industry lenders do require a little more than just an excellent credit score.  Marine lenders like to see a few basic parameters met on a customer’s bureau when applying for a boat loan:

·       Credit Score.

·       Lines of credit open and your Income.

·       Comparable lines of credit open to credit line requested.

·       Payments on credit lines made on time.

Typically, a credit score of a 680 and above can have a solid approval rating. Credit scores under a 680 may be subjected to stipulations before approval.  Some of those stipulations could be, more money down than the minimum 10%, or have set terms (length of the loan) by the lender.  With dealer and lender relationships the business manager can work with the customer to fit their needs, help get them approved, and be a guide every step of the finance process.

5. How Many Years can you Finance a Boat?

Starting the finance process when buying a boat can be confusing. You may have many financial routes to take in regard to money down, interest rates, monthly payments and terms of the loan. Terms, referring to amount of time the loan is structured, carry several options in the marine industry.  Terms available to you for a boat loan can range from 10 years all the way up to 20 years depending on the loan amount.  For example:  One of the qualifications for a 20-year loan is that the amount financed needs to be $50,000 or more.  Anything under that amount could still qualify for a 15 years term.  The 15-year term can range from any amount financed over $25,000.  Under $25,000 the terms available are 12 or 10 years.  12-year terms carry a minimum amount financed of $15,000 and the 10-year minimum is $10,000.  Some lenders even offer an accelerated program that offer terms less than 10 years upon qualification. The multiple term ranges for boat loans are offered because lenders want to make the vessel affordable to the customer, all the while giving the opportunity to be able to experience and enjoy the boating lifestyle.

6. How Much do you Have to Put Down on a Boat Loan?

Financing items for periods of time can be subject to putting “money down” for acquiring the loan.  For example, with Marine financing most lenders (Not All) require a minimum of 10% of the vessel selling price to be put down before the loan can be processed.  Notice 10% is off the selling price, not the OTD or “Out the Door” price. There can be a significant difference between the sales price and out the door price, once the tax, title, and registration are accounted for.  After the 10% deposit is collected, the loan can then be processed and submitted to the lender with signed contracts.  Some lenders in the marine industry will honor loans with “NO MONEY DOWN” whatsoever.  In order to qualify for this opportunity, the customer’s credit standings would have to meet certain criteria.

7. Are there Prepayment-Penalties on a Boat Loan?

A pre-payment penalty is A fee that must be paid back to the lender if the customer pays off the loan quicker than the contracted terms. Lenders in the marine industry may have a prepayment penalty up to the first 36 months of the consummation. The customer is to be given a disclosure, stating the terms of the pre-payment penalties of fees of the loan contract three days prior to closing. This can be found on chapter 494 of the Florida state statues. The borrower is also offered a choice of loan options without pre-payment penalties or fees. Marine financing carries a large number of lenders (banks) that do not charge these fees or have any closing costs this means that regardless of the length of time the loan has been contracted or the agreed terms of it you will not have to pay back the bank/lender any money.

8. Can I afford a Boat?

Purchasing a boat is a wonderful opportunity and if you ever have the chance to experience the boater’s lifestyle, I’m convinced you will NOT have any regrets.  One of the questions I often hear is, “can I afford a boat”?  The truth is yes, you can afford a boat as long as you fall within a bracket of making a percentage of income monthly that the lender (Bank) requires.  To calculate that amount we have to figure out your debt-to-income ratio.  First, take your minimum monthly payments of every credit line you have open (credit cards, mortgages, auto payments etc.) then divide that number by the total pre-taxed income you make each month and you will have a percentage of your DTI.  Lenders will use this percentage to determine how well the customer manages monthly debts.  If the customer has too many credit lines open or may have their credit lines maxed out, they could be a potential risk to the lender and in most cases will deny the customer financing for a purchase.  In the marine industry, some lending banks for recreation have regulations for DTI not to exceed 45%.  One of the main reasons this percentage exists is that with boats, the lenders want to know that the customer can afford the boat comfortably in the event something were to ever happen, and they experienced income issues. In that scenario, hoping it doesn’t happen to anyone, the banks are very much aware the mortgage and automobiles are priorities over the “toy that floats”.  The marine industry is a $170.3 billion-dollar industry.  Within this industry, 62% have a joint household income of $100,000 or less.  That is more than half of $170.3 billion!  Which directly states that you do NOT have to make all kinds of money to be able to afford a boat.  The Boat House is one of the top 100 dealers in the country and have a business professional on staff to personally help you (the customer) become a part of an amazing, fun, and growing industry.

9. Understanding your Credit Bureau

Trying to decipher one’s credit bureau can be overwhelming especially with three different credit bureaus that all report information a bit differently.  The three credit reporting agencies are Equifax, Experian, and Transunion.  Each of these have several versions that are used for the decision making in credit card applications, auto loans, mortgages, and recreational equipment or boats for example.  The marine industry has lenders that use certain types of reporting from each one of these companies.  With these types of reports can reveal longer history depending on its classification.  A boat is classified as a “Luxury Item” and the reports from the credit industries that the lenders require are fairly extensive and can disclose history over 20 years.  The lenders require this elongated history strictly because this is not a “necessity” type loan, like a house or an automobile.  On these documents the history will inform the lender of current and past lines of credit along with the payment history. If the customer has failed to make payments within the documented terms it can fall into three categories, 30-day, 60 day, and 90 day late.  While this gets recorded to the credit bureau’s the customer can also be subject to late fees associated with the original loan agreement.

10. Why Finance a Boat

When making a large investment purchase like a BOAT, there are a number of ways to do so. The customer may pay cash/check, take out a line of credit, or finance.  All these options may be acceptable at your local dealer with some consideration for each. Paying for the boat outright is the simplest option, but does require all the funds including sales tax, titling or registration fees to be paid with the purchase.  Considering the size of the boat, a large purchase like this could be a considerable amount of money and should take time to think about other options. Taking out a line of credit when buying a boat is also possible. This option can sometimes take time for approval and may not have the best terms available. Unfortunately, in the marine industry, a boat is a depreciating asset, the most readily available line of credit is an equity line against their home. As a consumer taking this option you are betting that home values will continue to increase. Financing a boat with marine lenders will give you multiple options including terms, interest rates, and early payoff possibilities. In most cases with a strong market, marine lending rates are considerably less than your personal investments will return to you on an annual basis. With options like no prepayment penalties, simple interest, and easy terms, financing with The Boat House Business Manager is quick and easy.

For more in depth information please contact Justin.ladd@boathouseh2o.com.