humbler

Trying to complete financing for my new boat purchase and keep getting curveballs thrown, but this phenomenon baffles me. It seems consistent with all lenders I have looked into. The lower the loan value and the shorter the term the higher the APR. Can anyone shed some light on the reasoning? I'm not from the financial arena, but would seem to me to that rates are risk driven, so why would a larger down payment and a shorter term warrant a higher rate. The banks all dance around answering the question, so thought someone here might be able to help.

humbler

Case in point - Just about had things wrapped up with Essex and they magically decided the max value of the loan was $49.5k based on their max 75% LTV, increasing the rate by 1% since it was under $50k. I offered to put more money down, but that doesn't help. As they explained, "Rates are based on amount of loan, not risk". Really? Never heard that one before...

Wildman_grafix

Shorter time and amount to make money on?

humbler

I suppose on the term side, but that implies to me that there's some sort of prepayment penalty. Why wouldn't I take the longer term to get the lower rate, and then just pay it off sooner?

On the loan amount side, I would give a much better rate on a loan for an $80k boat that where someone is putting 50% down instead of 20%, but that's just me.

t500hps

I'm not a banker or even a "financial guru" by trade. I do run a business and manage cash and loans to operate that business. For argument sake, lets say it cost them $1,000 to do all the paperwork related to a loan.....any loan.

For low money borrowed, they won't make $1,000 in interest. For a short term loan, they'll never collect $1,000 in interest. Therefore they raise the APR rates to cover the fixed cost of writing the loan in the first place. Longer terms and higher dollar amounts means they'll collect over $1,000 during the term.


EX: 2.5 years ago I bought a toyhauler. They offered a really low rate on a long term loan so I took it. I didn't want to carry it that long but noticed they put a line in the documents that said I had to pay a fee of $XXX dollars if I paid the loan off in the first 36 months. I've since sent them everything but the last 5 payments due which will carry me past that date.

humbler

That certainly makes some sense on the cost side, but I just have never seen it in any other lending situation. Maybe if they weren't so inefficient in the loan setup it wouldn't cost them so much! Guess I'll do the same and take the longer term and fine check the prepayment verbiage.

But that was another thing, Essex threw a $995 processing fee in at the end as well. The whole thing just rubbed me the wrong way I guess, seemed very bait and switch. Working with Jody@Newcoast now, so hoping for a better outcome. It's nice to have someone to communicate with about all of the details and nuance of a private party sale versus dealing with the customer service and underwriter robot scripts.

Rattlesnake Jake

iTrader: (2)

Two words,,,,, Credit Union.

humbler

I hear ya, and have tried that angle a little bit with not much luck. I live in PA and boat in MD. My PA-based credit union that I do everything with just doesn't do boat loans competitively, presumably because there's little volume, and the MD ones don't do out of state.

USAA seemed like a good bet, but they are getting tripped up on the logistics of a private party sale with an existing lien because my loan amount is less than the seller's payoff and they won't use 3rd party funds (my down payment) to payoff the existing lien.

I understand what the lenders are trying to cover themselves on, but the policies and procedures are so rigid and there is no common sense evaluation, so going through a broker agent is looking like the only way to go. I'm sure it will all get sorted, but it's way more time consuming than it should be!

brentadkins

Lightstream is another good lender, and very easy to deal with