Boat Loan Money Is Still Flowing!

Despite all of the reports of credit
markets freezing up, sky-rocketing interest rates, and banks not even lending to
other banks, boat loans are still widely available at reasonable rates. For the
last several days BoatTEST.com has surveyed banks, boat loan brokers, boat dealers
and boat builders and we found that boat loan money is still flowing. While several
large consumer institutions, such as GE Capital and Key Bank, have gotten out of
the consumer boat loan business, other institutions are still making loans directly,
as well as through loan brokers and boat dealers. That is the good news. However,
the free-wheeling days of 100% financing to anyone with a heartbeat are over, whether
it be for a boat loan or nearly anything else.

Merrill Lynch is now bullish on the Bank of America -- its new owner, and the source of much of the country's boat loans.

Back to the Basics



Not too long ago a boat buyer could finance 100% of his boat plus, in some cases,
the sales tax and the cost of his optional after-market equipment. From what we
heard from a number of sources those days are gone, and lenders are going back to
more traditional credit practices. We are told that lenders now want from 10% to
20% of the cost of the boat down as well as consumer cash flow and asset statements
that show that a borrower actually has the income to repay the loan. Not surprisingly
the lenders also want some assurance that the stated income is likely to continue.



Credit score targets have generally moved up and lenders are less interested in
the boat as collateral and more interested in the income producing potential of
the borrower. We are told that bank regulators are getting tougher so the loose practices
of the past are being tightened up, and banks simply do not have the latitude they
might have had the last several years.



Make no mistake about it, boat loans are definitely harder to get for people with
credit scores or income-to-expense ratios which are marginal. That means some banks
are turning down applications. In some cases it is because of the perceived risk
of the borrower, and in some cases the rejection is more of a reflection of the lender's
situation than the borrower's. That is one reason why boaters should shop around.
If you are turned down by one bank or lender, particularly if you are in a strong
financial position, in all likelihood the bank is the problem, not you.


Interest Rates and Terms




The terms of the boat loans seem to be pretty much as they were before with loans
going out as long as 15 to 20 years. Interest rates as of last Friday were anywhere
from 6% to 8%, typically, depending on your financials. Several lenders told us that with credit scores in the
mid to high 700s, a consumer could expect to get a loan in the low 6s for 20 years.
The lower the credit score, typically, the higher the interest rate.


Credit Score is Critical



While there are exceptions to virtually everything to do with boat loans, we found
that a buyer's credit score is very important to most lenders. Larry Russo, a respected
Boston boat dealer who also has his own boat loan brokerage company says that "720
and above is the gold standard." A private banker for Bank of America told us that
"below 660 you're toast." A credit score service states that 660 to 749 is "Good"
and 750 to 840 is "Excellent."


Recent Boat Loan History



Historically boat loans have had among the lowest default rates of all loans, far
better than home mortgages and car loans, and just behind piano loans, which historically
are among the highest quality loan. And while
boat repos are definitely up, Tom Carroll, president of Viking Sport Cruisers and
former banker and founding member of the National Marine Bankers Association, told
us that boat loans are still "one of the best loan risks." He said that "...it seems
that a boat owner will give up most anything before his boat."


Two Important Lenders Bail



Nevertheless, in the last six months the two largest prime sources of boat loan
money have withdrawn from the business. In May GE announced that it would no longer
seek consumer boats loans, although it would stay in the boat dealer floor-planning
business.



Just a couple of weeks ago, Key Bank also announced that it was
pulling out of consumer boat loans. A large number of boat dealers used Key Bank
as a primary source of funds and most boat loan brokers also tapped into Key Bank.
With the two largest sources gone, dealers are now relying of Bank of America, regional
and local banks,
for the most part, for consumer credit.


Some Boat Dealers Scrambling



While a few boat dealers may have relied almost solely on Key Bank for their customers'
loans and may be scrambling for the next week or so to find a replacement, most
dealers have multiple sources lined up for customers. Arranging for consumer credit
is one of the jobs of a boat dealer because he wants to consummate the transaction
as much as the buyer.



Since the dealer is making the retail "sale" of the loan the
lender will pay a point or two on the loan. We have heard stories of dealers
making even more, so you should always check your own sources of money to make sure
you are getting the loan for the lowest total cost possible.


Bank of America



Bank of America now seems to be the single largest source of boat loan money for
the boating industry in the U.S., so you might consider starting there. Essentially Bank of
America (BoA) has three avenues of direct consumer loan contact: its "Private Bank"
for high net worth individuals, say $10 million and up, "Premier Banking" for individuals
with a lower net worth but with substantial deposits, and "Consumer Banking" for
everyone else. We were told by one BoA official to forget about walking into a BoA branch
and asking for a boat loan.



While this might be true, BoA has a very user-friendly
website which seems to be inviting the general public to apply for a boat loan online.
Their website says if you get your request in by 3 pm you'll get all of the paperwork
FedExed to you the next day. If you are in the market, you should definitely check it out. (Click here for BoA boat loan webpage.)


Local Banks and Credit Unions



There are thousands of small, local banks across the country. Many of them have not been directly affected by the financial crisis. For the most part
they seem to have been making home mortgages the old fashioned way, which kept them
out of the sub-prime business. (There are definitely exceptions to this, as some locals
are in trouble, which is one reason Congress raised the FDIC limit to $250k.)



Local banks can be an excellent source of loans and
two we spoke with both said that they are currently seeking loan business. These banks are
more likely to look beyond a credit score to the individual's actual financial position,
particularly for their long-term customers. Just because a bank is local and seems
small, does not mean that they are without resources -- 504 local banks and 162
thrifts have assets of over $1 billion.



Credit unions are another good source for boat loans. Because they have a tax break,
they may be willing to make a boat loan to you for slightly less than the local
bank. Once again, don't think all credit unions are small potatoes as 132 of them
have assets over $1 billion.


"Private Banking"



All of the big banks and financial institutions, such as UBS, have what they call
"Private Banking" for high net worth individuals.
Most private bankers are happy to loan money for any purpose so long as one's stock
and bond portfolio is parked in their bank. They will loan you money on "your signature"
up to a certain percent of your portfolios. Typically, high net worth individuals
can get interest-only loans for one point under prime or even less for standard
terms. With the prime at 5% today, that means 4% money, which is hard to beat.


"Home Equity" Loans



"Home equity" loans have always been a good source for low-cost money for consumers
and these loans are still available. However, the same tightening credit restrictions
and the devaluation of most homes means these loans are not quite as easy or as
cheap as they were just 6 months ago. Interest rates for such loans should be a
little over or a little under prime, depending on one's relationship with a bank.



The truth be told, large banks really don't like to make loans under $50,000 because
of the paperwork and man hours involved; they'd rather spend their time
with someone wanting a $5 million loan. For loans under $100k you might be better
off going to a small bank, using a loan broker, getting a loan online, or even putting
it on a credit card.

"FirstAgain" Online for under $100k



"FirstAgain" is an online boat loan broker that says it does not use the FICO (Fair,
Isaac & Co.) credit scores, but on the other hand deals only with borrowers
with "excellent credit." FirstAgain recognizes that there are technical and often
questionable reasons why someone might have a low credit score. The company says
that "each consumer is reviewed individually and we look at credit history, income,
job stability and assets." They say the loan is unsecured, there are no fees or
points and it can be used for anything, not necessarily a boat. They loan from $10k
to $100k for 24 to 84 months at current rates from 5.99% to 7.49%.



It is a "paperless" loan as everything is filled out online. FirstAgain gets its
money from Merrill Lynch (owned by BoA), but they make the lending decision and
service the loan. These are two chores that cost the bank money and may allow FirstAgain
to lend money at a slightly lower rate. (Click
here.)


Other Online Boat Loan Brokers



For many years there have been a number of brokers specializing in boat loans.
These companies find sources of money such as BoA and other banks, market to the
boating community, handle the paperwork, and collect a couple of points for their
trouble. Just like a real estate mortgage broker, they are in touch with a number
of financial institutions and know what kind of risk each is looking for, what size
loans they want, and what credit scores they demand. The brokers look over your
application then deliver it to the lender most likely to approve your request. Typically
these brokers have rates that are competitive. Here are a few of the traditional
companies but you can Google "Boat Loans" and find many more-- 

Boat/US Finance 

Essex Credit 

Eboatloans.com


Credit Cards



BoA and American Express have teamed up to market the "Accolades Black Card." This is the
current ultimate in credit card prestige. The card costs $395 per year,
but if you are a BoA Private Banking or Premier Banking client they will wave the
fee. Interest
rates for the first year are very low.
For more information about the Accolades Black Card click here. 



Most major credit cards are now offering -0- interest rates for the first year as
an inducement to sign up. Credit limits of $50,000 are fairly common. Use Google to find them.


List of Loan Sources by State



The National Marine Bankers Association (NMBA) has a list of marine lenders by state.
These are comprised, for the most part, of local banks and boat loan brokers. There
is also some general boat loan information on the NMBA website.
To access the list of loan sources by state, click here. 

Used Boats as an Alternative



Boat buyers who can't get approved for a new boat are now increasingly turning to
used boats which are two or three years old, or older. Just like an automobile,
after the first three years a big chunk of depreciation has been wrung out of the
boat. By finding a good used boat for less money, the income-to-expense ratio required
by the lender will be easier to satisfy. So while it may be impossible to get a
loan for a big new boat, a big used boat might just work for everyone involved.


Don’t Give Up The Ship!



James Lawrence was right.* No one knows what is in store for us all financially,
but there is one certainty -- time marches on and once a boating season is gone,
it is gone forever. If there is any lesson to be learned from all of the above,
it is that money is available if you search for it.



*(During a fight off Boston with a British man-of-war in 1813 aboard the USS Chesapeake
Capt. Lawrence said: “Tell the men to fire faster. Fight 'til she sinks. Boys, don't
give up the ship.”)