The 2 Most Important Factors of Boat Loans

From a Lender’s Perspective

Loan institutions operate to make a profit, and in order to do that, their loans must be paid on time and in full. Late payments cause extra work, and reposessed boats cost lots of money in legal bills and labor, and getting back what is owed on the used boat market is problematical.  As everyone knows, no one needs a boat, and during times of economic stress, used boat prices plummet.

So, as you can see, boat loans have risk for the lender. 

Getting a boat loan in the first place, and the interest rate charged, is a direct reflection of the lender’s evaluation of the risk it is taking in making the loan. Financial services struggle to model risk accurately of both the individual taking the loan, as well as the collateral. 

It’s About the Math

Loan Risk Algorithms. In order maximize the number of correct decisions, loan institutions use highly sophisticated software programs that quantify the risk of each individual. But, assessing the collateral’s value in a down market is, at best, an educated guess. 

Essentially, approval of a boat loan and determining its interest rate all boil down to two factors--

1.    The borrower’s financial resources and payment history

2.    The likely liquidity of the boat used as collateral

A.    The Borrower – What You Need to Know 

Credit areas that are important to a lender:   

•    Credit Score – It must be in the mid-600s or better.

•    Debt to Income (DTI) – Your total monthly bills and financial obligations divided by your monthly income. This needs to be 40% or less or your loan will be challenging.  

•    Time in Bureau – How long have you been paying your bills? 

•    Number of Installment Trade Lines – Typically 5 or more are desirable.  

•    Highest Installment Credit Line – Is it more than the amount you are looking to finance? 

•    Negatives -- Late payment history, bankruptcy, charge-offs, etc. 

•    Loan to Value Ratio –What is the NADA value vs. what the unit is selling for. (Each lender varies in how much over an NADA-valuation they will loan. If new, they use manufacturer invoice.) 

•    Liquidity is Important – For boats loans over $150,000, your liquid assets (stocks, bonds, ETAs, savings accounts) should be from 1x to 2.5x the amount financed.

  

What are the Parameters of a “Credit Score?”

FICO (Fair Isaac Corp) scores range from a low of 300 to a high of 850. A perfect credit score which is achieved by only 1.6% of consumers. For a boat loan, the applicant usually must score in the mid-600s or better. 

Five factors are included and weighted to calculate a person's FICO credit score:

•    35%: Payment history

•    30%: Amounts owed

•    15%: Length of credit history

•    10%: New credit and recently opened account

•    10%: Types of credit in use

There are other factors involved in a borrower’s financial profile including income, the stability of the income, net worth, and other factors. All of these data points go into an algorithm that quantify the individual’s risk. 

B.    The Collateral (a.k.a the Boat)

Basically, the risk associated with boats divides into two baskets: new boats and used boats. New boats are deemed in near perfect running order and at the peak of their value. Lenders usually consider them lower risk in case of repo and sale than both used and non-current boats. A “non-current” boat is one that has never been sold and used, but was built prior to the current model year.

(Caveat Consumer: Non-current boats are typically lower-priced than an identical model of the current year not only because the dealer wants to get rid of it, but also because the buyer, if financing, will be paying a higher interest rate than on the current new model.)

As boats age they tend to deteriorate.  Gel coat oxidizes, hoses become brittle, upholstery gets worn, electronics becomes outdated, and hours are put on the engine, thus shortening the time until a major overhaul. All of this adds greatly to the re-po re-sale risk because boats become devalued over time.

The 20-Year Rule. Most lenders are not interested in giving loans on boats over 20 years old.  But, there are exceptions in larger boats. In nearly all cases, the market value of the specific model, given its year built, engine, engine hours, equipment and a few other factors will determine the amount of the loan available, and its interest rate. 

“Character” boats and unusual boats, even if new, will often be limited in the amount financeable and have a slightly higher interest rate. This is because of the re-sale rise if re-po is necessary.

Elite Direct Finance

Now that you have the lay of the land from the lender’s point of view, it’s time to line up a qualified boat loan broker. And, that’s where Elite Direct Finance comes into the picture -- on the side of the applicant.  Every potential boat buyer has a different profile, and it’s Elite’s job to do the best it can to secure the best loan possible at the lowest rate.    

With over 100 years of combined boat loan experience, and by looking at the financing needs of boaters with fresh eyes, Elite’s loan officers were able to spot several important areas to improve the experience.  Those major areas are

1.    Speed in “Pre-Qual” response (usually in less than 24 hours during the workweek, holidays excluded.)

2.    The diversity and number of financial sources (currently 7).

3.    Efficiency and organization in preparing loan apps for approval  (This means less work for the lender, and approval usually within 48 hours.)

4.    Consultations with applicants to improve loan opportunities (This is key because Elite knows what lenders are looking for.)

5.    Creating a high-quality loan experience from start to finish (See testimonials).

Recently, BoatTEST formed a partnership with Elite to bring their services and expertise to our 203,000 current members. We like Elite’s dedication to customer service, and its modern, efficient way of doing business.  We invite our members to make use of this terrific opportunity to have trained professionals working for your interests.

Elite Direct Finance has earned BoatTEST’s confidence in providing boat loans to its members with an exceptional overall experience. Below is a link to a monthly payment calculator, as well as one to the “Pre-Qual” form that can be completed in less than 2 minutes.