Loan-to-Value:

Loan-to-Value is the amount of money you wish to borrow, versus the total sale price of the boat, which would include sales tax.  Most banks have strict guidelines when it comes to how much they will lend.  As a boat is construed as a “toy”, lenders want you to have a “mental investment” in that asset.  As a rule of thumb, the standard for loan-to-values is 80%, but lenders are out there that can get you up to 90% of the total purchase price, and on a rare occasion, sometimes even more.

As an example, if you are buying a boat for $26,000.00 and the sales tax is $1,820.00, your total sale price is $27,820.00 and an 80% “advance” would give you a loan of $22,256.00.  A total sale price of $100,000.00 would give you a loan amount of $80,000.00 and so on.

Loan Terms:

The length of time you can borrow the money for is directly determined by several items, but mainly driven by two items: the amount of money you are borrowing, and the age of the boat you are buying.  As another rule of thumb, you can normally borrow $25,000.00 for a period of up to 10-12 years.  If you borrow more than $50,000.00, normal terms are available up to 15 years.  Loan amounts exceeding $75,000.00 can normally be financed up to 20 years.  All of this will hold true for boats that are no more than 8 years in age.  If a boat is more than 8 years of age, you will need to consult your lender for amended terms.

Debt Ratio:

This is one of your lender’s favorite terms and a term bantered about by everyone.  In very basic terms, a debt ratio is how much you make versus how much you spend in recurring monthly debts.  The actual formula for figuring out this ratio is to take your total monthly bills (mortgage/rent, car payments, credit card payments, and so on) and divide that number by your total gross monthly income.  Lenders use a “before loan ratio” as well as an “after loan”.  Normal guidelines for after loan ratios are in the 40-45% range.

As an example, if you make $60,000.00 annually, that would be monthly income of $5,000.00.  If your current bills are $1,750.00 and your new boat payment is $500.00, your total outflow will be $2,250.00.  Your after loan debt ratio is 45%.  (2250/5000 = 45)

Hull Type:

While this may sound a little odd, there are boats that are not made of fiberglass.  Some of the best boat builders in the world use aluminum steel or wood.  When a hull is manufactured of anything other than fiberglass, you can expect the terms of the loan to change, applying higher interest rates and shorter finance periods.

Ownership:

While the vast majority of recreational boaters are still private individuals, the is a surge of people borrowing money in the names of “shell corporations” in order to distance themselves from liability in the case of insurance claims, better tax benefits and so on. For vessel titling purposes, many larger boats are being “titled” in the Caribbean and “flying a British Flag”. If you choose to register your boat in anything other than your personal name, you need to point that out to the lender ahead of time. This will also have several effects on your loan including possible higher interest rates, lengthened time to close the loan, increased documentation expenses and some lenders do not loan to corporations.

The fastest and easiest way to borrow money is still the “old fashioned” way, as Mr. John Q. Public.

Keep in mind that many lenders may want your spouse to at least guarantee the loan, even if one partner make be the “bread winner” in your household.

Usage:

As more and more boats are hitting the waters, people are becoming more and more creative in the way they use boats.  The main types of usage are: private or recreational, commercial, and charter.  While the vast majority of boats are for private use, many boaters are now using their boats on a “part time charter” basis.  This would be the owner that takes executives out for an occasional fishing trip.  Another idea is a “full time charter”.  This is a boat that is given to a charter management company for weekly or monthly charters.  The majority of these boats are in the Caribbean and used as vacation destinations.  Most lenders do not make loans for commercial or charter purposes, so be sure to mention it ahead of time if this is something you are considering.

Registration vs. Documentation:

This is the “titling” issue noted above.  This is basically the same thing as putting a license plate on your car.  Boats can be registered on a state level or on a national level.  The U.S. Coast Guard handles the Federal Documentation process and there are marine documentation service companies that can handle this process for you.  Most lenders will require a boat to be federally documented if it is eligible for the program (which is based on tonnage and displacement, usually 28’-30’ and higher). There is a fee for this process, which is not included in your purchase price, normally in the range of $400 to $500.

This process is explained in much more detail at "Registration vs Documentation".

Credit Requirements:

Without going into too much detail, it is important to note that the better your credit rating is, the better your rate can be.  As we mentioned previously, a boat is considered a “toy” and therefore is viewed differently by a bank in terms of collateral.  While you may need your car to live, a boat is disposable.  If someone were to lose their job, the toys are the first things they stop paying for.

This doesn’t mean that if you have blemishes on your credit that you can’t buy a boat.  There are numerous programs available for customers with less than perfect credit. If this happens to be a situation that is familiar to you, know that you may pay a slightly higher rate.  You can also keep in mind, that as your credit improves with time, you can always request a rate reduction from your lender.

Marine Surveys:

In the instance you are purchasing a pre-owned vessel, you will probably need to have the boat surveyed.  This is the same as an appraisal and will help establish the overall condition and value of the vessel.  In most cases, the boat will have to be “hauled” at a marina for the inspection, which can affect the price of the survey.  The larger the boat, the higher the price of the survey.