Thinking about buying a brokerage boat and you need to finance it, but your credit is less than perfect? Don’t worry, you can still get a boat loan. Here’s what you can expect when applying for a boat or yacht loan from a bad credit lender.
The first thing you need to know is your FICO (Fair Isaac Corporation) credit score, which you can get for free at myfico.com. That’s a number that ranges from 280 on the very low end to 850 on the high end, with an average score of 660 to 724. According to Samantha Strott, a financial specialist with New Coast Financial Services, credit score parameters vary by lender. But in general, if your score is below 660 you’ll be looking for what is called a “sub-prime” loan, which means you are a greater financial risk to a lender than someone who has a higher credit score. In other words, you need a bad credit lender. Nevertheless, says Strott, there are many more opportunities today to get a sub-prime loan than there were just a year or two ago. Here are some of the requirements, and some of the differences you’ll find between a sub-prime and a prime loan.
1. Income verification. Strott says this is almost always required for sub-prime buyers, while prime buyers may not have to verify their income.
2. Higher interest rates. These vary widely depending on the lender, but you can expect to see a higher loan rate on a sub-prime loan because of the added financial risk.
3. Shorter term. The lender may want the loan repaid faster by a sub-prime buyer. For example, a loan that would normally have a 15-year term might be reduced to 12 years by a bad credit lender.
4. Increased closing costs and fees. These will likely be higher on a sub-prime loan than a prime loan.
5. No current delinquencies. The lender will want to be sure you are current on your mortgage and other vehicle payments, and there are no late payments within the past six months.
6. Some boat types may not qualify. In general, lenders may disqualify applications for high-performance boats, commercial vessels and personal watercraft.
The good news is that the required down payment is generally the same (10 percent minimum for loans up to $75,000, 15 to 20 percent for loans of $75,000 and up), and a prior bankruptcy may not be a problem.
Qccording to Tom Shumacher, president of SeaDream Finance, there’s more good news to report for those with less than perfect credit. “Rates are coming down for sub-prime loans,” says Shumacher. “Whereas they used to be in the high teens, now we’re seeing some rates in the 9.95 to 11.95 percent range.” He recommends checking the pricing of the boat you’re interested in on NADA Guides to make sure you’re your boat “books out,” or roughly matches the prices. If there’s a big discrepancy between the asking price and the NADA price, the boat may not qualify for the loan.
When it comes to finding a bad credit lender, Strott says make sure you’re dealing with someone who’s licensed and bonded. “Watch out for websites that appear to be boat-loan sites. Some are just linking to other related sites,” she said.
So even though your credit has taken a few lumps along the way, that doesn’t mean you can’t get a loan for that new broker boat or yacht. In fact the opposite is true. This is a good time for you to review your credit report, correct any errors, and work with a qualified lending professional so you can get out on the water.