After reading the other post I fugured I would take a moment to try and shed some light on boat loans. Who, what, where, when and why................(sort of)
What is part of the loan decision?
Your Credit Score: Credit score is important when it comes to getting a loan but it is not everything. Alot of people call me and say "I know I can get a loan - my score is 750." a 750 means that you have great credit history but does not mean a slam dunk for a loan. Credit scores:
750+ Score = super credit score. Less than 20% of the apps that come across my desk have this
700-750 Score= also a great score but not impossible to obtain
675-700 Score = Largest % of people who apply fall into this category
640-675 Score = some late pays, maybe a $200 collection from Verizon Wireless (their screw up)
640 or less = some rough credit. Alot of late pays, collection accounts, civil judgements, settled accounts.
Most Banks will not go under 640. One bank I deal with will go as low as 620. THERE ARE NO BANKS THAT WILL GO UNDER 600. You need to see Vinny on the corner for those loans
Very Important to know -> Credit Card Company calls and says "Hey - you are a little behind in your payments, you have a $3,000 balance...pay us $2,000 and we'll call it even"
NEVER DO IT! It is called a settled account and is just as bad as if you screwed them for the whole $3,000.
Debt to Income: (DTI) This is important to most major lenders out there. Basically add up all of your monthly payments and and up and all of your monthly income. Most major lenders do not want to see your monthly debt = more than 50% of your monthly income.
Liquidity: Alot of major lenders want to see liquidity but not all. Basically means that if you have a $5,000 in the bank but have $5,000 of monthly bills to pay (mortgage, cars, boat, credit cards, etc.) you have little or no liquidity. Alot of larger lenders want to see the amount of cash in the bank = 6 - 9 - 12 months worth of bills just in case you lose your job. This usually applies more toward larger loans. ($100k plus)
Work History: Being employed or self employed for 5+ years by the same place is good. Going for a boat loan if your just started your own business is very tough. Banks like to see continuity in work history.
Comp Credit: Comp Credit means that you have had a loan of the same size or a little less before. Going from a $100k Boat loan to a $130k Boat loan is not tough. Going for a $300k boat loan and just getting out of a $100k boat loan is very tough. If you have a home mortgage for $300k that will help. If the boat loan you are applying for is the largest loan you will have ever had at this time, you will have a hard time getting it.
Co-Signer: "Well if I don't qualify, I will get my dad to co-sign". Ummmmmmmm MAYBE. Unless you are married and have had joint credit previously a co-signer means nothing. The reason being is that if you have never purchased anything together before (with a loan) both of you would have to qualify on your own FIRST before the two of you could qualify for the loan together (thus you would not need a co-signer in the first place) Doesn't quite make sense but thats the way most banks look at it.
Down Payment: Buying a boat 40% off current maket value does not constitute a down payment. Banks like to see down payments because that is CASH out of your pocket. That helps make you committed to making the monthly payments. If you put no money down on the boat, and you use it for 4 months and then decide to let the repo man come and get it - you don't care. BUT! If you put down $20k on a $100k boat, you would think twice about having the repo man take the boat because there goes $20k of YOUR MONEY! Some banks offer NO MONEY down loans on new purchases under $100k. For this to happen, the purchase price must not exceed 15% above the invoice (bank can request a copy from the dealer) and the person also needs ALL OF THE ABOVE and be an AWESOME credit candidate.
Types of Loans
Proof Of Income: (P.O.I) These banks require tax returns along with the application. Usually for larger loans ($100k+).
NO DOC Loans: NO DOC Loans means you do not need to show proof of income to apply for the loan. Different banks have different limits. NO DOC means that you state what your income is on the loan application is and that is what the loan evaluation is based on. Most of the time it is used for credit scores of 675 or better. This works very well for self employed people who show $50k on their tax return but actually earn $100K+ because of un-reported cash. Our limit with NO DOC loans is $250k.
Types of Loans
Fixed Rate Loans: Means that the rate is fixed for the entire duration of the loan.
Adjustable Rate Loans: Most popular is the 3yr fixed. This loan usually has a lower rate for the 1st 3 years of the loan vs. a fixed loan. On the 37th month, the loan changes to a variable loan which your payment could change every month. The variable rate is usually prime (which is currently 5.25%) + 1/2%. This loan works well in declineing rate markets or for people who usually flip their boats every 2-3 years.
Some Unique Issues
FORDGING TAX RETURNS / BLATANT LIES ON CREDIT APPS: If the bank ever discovers this, they can recall the loan immediately. Ask National Marine's banks about this. They call it Bank Fraud.
SELLING YOUR BOAT TO ANOTHER PARTY BUT YOU HOLD THE PAPER: 1st this makes you responsible if they god for bid kill anyone in or with your boat (don't care how good of a lawyer agreement you have) 2nd - Your existing loan will still show on the credit reports and will more than likely screw you on your debt to income (DTI) and push you over 50%.
BUYING A BOAT FOR $100k THAT HAS A BOOK VALUE OF $50k: Most Banks want to loan 80% of what the current wholesale value of any used boat. The only way to get around this to have a Marine Surveyor survey the boat and if the Survey says the current value is $100k, then most times the bank will take that value as the benchmark and not the wholesale book value.
SURVEYS: ALWAYS survey used boats!!!!!!!!!! And ALWAYS make sure they are NAMS or SAMS certified (or just use Ed Cozzi). Joe Blow the Rag Man who charges $150 instead of $500 doesn't know crap about surveying and the bank will more than likely not accept it. You can find SAMS surveyors at www.marinesurveyors.org
I hope you guys find this little recap helpful and insightful in regard to applying for a boat loan. No matter if you use my services or someone elses, the above will more than likely apply.
Last edited by DaveP; 01-25-2005 at 07:34 AM.
Nice Job Dave
You are welcome - any other questions / just post them and I will do my best to answer them
that is good!!!
i think the general public,, not so much here, as this is a pretty educated group!! but in general most folks dont understand what even drives the score up or down,,
Just wondering how the banks look at the age of a boat, I have been told that it's going to be hard for someone to get financing on the boat I'm trying to sell, it's almost 9 years old, we purchased it new, in very good shape, but not a new boat, is someone going to have trouble borrowing money to buy it?
I had heard that anything over 4-5 years is harder to finance. If this is the case what is the reasoning behind the banks thought on this? The bank will loan 15-20 years on a new one so why when the boat is older are they hesitant to loan on it?
Just something I've always wondered about.
Thanks in advance,
Last edited by timewarp; 01-25-2005 at 12:15 AM. Reason: Spelling Error
As for older boats - all banks have different requirements. 9 years old should not be an issue at all. I deal with 9 different banks and the shortest cutoff for the age of the boat is 10yrs and that is only one bank. I have financed boats 20+ yrs old.
Usually on older boats you cannot get 20yr term but 15yr term should not be out of the question.
Anything over 5yrs old tough to finance = just not true!
I've heard over 10 yrs old gets harder to finance, but still can be done relatively easily with good credit and a survey.
Thanks for clearing that up for me. I've heard it from a couple people and now I know they are full of it.
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