How do you get the right boat loan for your new or previously owned dream boat? Here are 10 tips from Boat Owners Association of The United States (BoatUS) just in time for the winter buying season.
1. Check your credit: Before applying for a loan, ensure your credit report is accurate, and get your current credit score. The closer to 700 and higher, the better the rate you’ll get. A free copy of your credit report is available annually from each of the three national credit bureaus at www.annualcreditreport.com. To get your credit score, first try checking with your credit card issuer or bank you do business with. If it’s not provided, you will need to speak to a credit counselor, use a fee-based service or purchase it from the credit bureau. More at the Consumer Financial Protection Bureau.
2. Find the right loan type: A fixed-rate, fixed-term, simple-interest loan is the most common. This offers the same monthly payment for the life of the loan. Variable rate or hybrid options may offer a combination of a fixed rate for a few years then a variable rate. With interest rates forecasted to rise in 2017, the appeal of variable rate loans may increase. Don’t forget to ask if there are prepayment penalties for paying off the loan early.
3. Compare loan rates: Generally, rates are lower and available loan terms are longer for newer boats and larger loan amounts. However, each is dependent on a variety of factors including model year, loan amount and down payment. Be prepared for lenders to require larger down payments, have higher rates and offer shorter terms on older boats, especially those over 20 model years. There could also be a .25 percent rate difference between some consecutive model years, so be sure to talk with your lender and understand their rate and term structure.
4. Don’t be fooled by ads: You may see rates advertised as low as 3.99 percent, but there usually will be some small print that could make that loan less attractive. For instance, the rate might only be fixed for a few years or the loan period might be only seven years.
5. Get pre-approved: Ask if you can get pre-approval, or if your lender allows you to start the underwriting process before you have a signed sales agreement. This may save some time.
6. Consider a HELOC: Thinking of using a home-equity line of credit (HELOC) to buy your boat? This might work if you have equity in your home and you plan to pay the boat off while interest rates remain relatively low. Unsecured loans (loans not secured by your boat) are also an option for well-qualified individuals.
7. Explore tax benefits: A boat can qualify as a second-home loan interest deduction if it has a berth, head and galley, so buying a boat just large enough to have these features could offer a tax advantage. There’s an overall limitation on the second-home deduction. You can only deduct two homes, and it can’t total more than $1 million in loans. If you count the HELOC, the threshold is $1.1 million.
8. Get it surveyed: So you’ve secured the loan and found the boat you’ve wanted. Hang on! While you might think the boat is perfect, hire a qualified marine surveyor to inspect the boat to ensure it is in good condition and you won’t have any unexpected repair bills. A list can be found at BoatUS.com/surveyors. Also, many lenders will require a marine survey.
9. Ask about closing costs: As with any loan, there are some fees involved – sales tax, processing fee, and title and registration fees are common. Check with your lender to find out what to expect.
10. Calculate your monthly payment: Wondering how much of a loan you can afford? Check the BoatUS online calculator at BoatUS.com/calculator to compute monthly payments. Your lender will also review your debt ratio and other criteria.
To learn about BoatUS Boat Loans, go to www.BoatUS.com/boatloans.