Organization is the key! Isn’t this true of most things in life? I can tell you, it sure applies to fishing! With proper planning, you can qualify for a great low-interest loan, without a lot of stress and aggravation.
If you start to plan early in the process, you can get a pre-approval letter from your lender, which can look really appetizing to a yacht broker or boat salesman who is trolling for customers. It also demonstrates a few things: First, you are a serious buyer and motivated to do business; second, it gives you immediate negotiation leverage, as the pre-approval letter would act as cash; third, the process will go much smoother and quicker. With that, here are some friendly tips to consider when financing a boat.
1. Run a Credit Check. The federal Fair and Accurate Credit Transactions Act of 2003 (FACT ACT) amended the Fair Credit Reporting Act (FCRA), allowing you to get one free copy of your credit file every 12 months from each of the three nationwide credit-reporting agencies. The three agencies you need to follow are: Equifax (877-322-98228 or equifax.com), TransUnion (800-888-4213 or transunion.com) and Experian (714-830-7000 or experian.com).
Lenders use these three agencies to review your credit. Some lenders will consider your home address when choosing an agency, as they feel that there may be more strength, or more accuracy, by going with the agency closest to you. Most lenders in the Southeast use Equifax, and the model known as Beacon 9.0 seems to be the most dependable for yacht lending. By reviewing your credit, you can see if the file is accurate, and log a dispute if necessary. The last thing you need is a surprise. Currently, lenders are also awarding a discounted interest rate for stronger credit scores. Stronger credit scores mean a stronger, and more profitable, bank portfolio, and lenders will reward you, as there is less risk in the transaction. One basic tip to improve your credit score is to pay down revolving debt, or credit cards.
2. Verify Your Income. In the overheated market of the early 2000s, the “no-doc” loan was really popular! It was known as the “sign and drive.” Now, as banks are licking their wounds from those aggressive policies, and new regulations are in place, income must be verified on all loans. On smaller boats, this may mean supplying a year-end pay stub, or W-2, for 2012. On boats in excess of $100,000, be prepared to submit two years’ worth of tax returns with all schedules. Naturally, for those who are self-employed, business tax returns must also be made available.
3. Come With a Good Down Payment. Putting cash down will be necessary, and it will be verified by your lender. The most common down payment is 20 percent. In Florida, we face a 6 percent sales tax, and a small-county surcharge. Therefore, the lender is really netting 14 percent as a true down payment. With boats and yachts facing some year-to-year depreciation, a robust down payment is necessary and works in your favor. In fact, several lenders give interest-rate reductions for down payments in excess of 30 percent. One bank manager I recently interviewed said that their portfolio is operating at 0 percent delinquency over the last 10 years when the down payment exceeds 30 percent. So naturally, with risk minimized, the bank can offer a more attractive interest rate.
However, when you have your sights set on a big sport-fisherman that is up there in price ($4 million or more), be prepared for a slightly higher down-payment requirement. In this instance, a 30 percent or greater down payment is the norm, and is not rewarded with a rate discount.
4. Get the Best Rate. At our firm, which offers very competitive terms, the following would be rewarded with a good interest rate:
A credit score of 800 or higher earns a one-quarter percentage point discount.
A shorter term or amortization earns a one-quarter percentage point discount.
A down payment of 30 percent or greater earns a one-quarter percentage point discount.
These are the nuts and bolts of the process. By spending some time on it, and organizing a financial folder, you’ll be ready to buy that beautiful fishing boat of your dreams — and I bet you’ll save some money by securing a better rate!
Chris Berkeley has worked for Intercoastal Financial Group since 1994 and has nationwide lending authority. He is very active and well known in the fishing community.
Intercoastal Financial Group
Fort Pierce, Florida