There are so many people who would love to own their own boat but don’t think they will ever be able to afford it. It is a common misconception, however, that only billionaires can afford their own vessel. In actual fact, owning a boat is now a dream which is possible for most people as long as you have your finances in order. Obtaining a boat loan means that now anyone who has a good credit rating and earns enough money to make the monthly repayments could be sailing the seven seas whenever they need to escape the world for a while.
This article is a guide to everything you need to know about boat loans and how they work.
1. A Boat Loan Requires a Good Credit Score
A suitable credit score is the first thing you need to prove that you are eligible for a boat loan. In order to do so, you will need to apply for your credit reports from the different credit bureaus to show potential boat loan lenders. The main three which are used by the marine industry are TransUnion, Experian, and Equifax. The three bureaus actually use difficult mathematical formulas to calculate your score, so don’t be too worried if they vary a bit. Boat loan providers are aware of the differences and so pay more attention to the actual information in the report rather than the final credit score. Contributing factors to your credit score include your loan history, your record of paying back your debts, how much debt you currently have, and a variety of other factors.
2. You May Need to Improve Your Score to Secure a Loan
If the credit reports you submit to boat loan lenders are not up to the required levels, you will need to improve them before you can apply successfully. There are various ways to do this to help your chances of getting a loan, and one of the most effective is to take out other loans to later show that you have paid them back responsibly. Boat loans work in a similar way to car and mortgage loans, so try taking out one of these loans, pay them back on time, and then reapply for another boat loan with your new credit reports. At the end of the day, boat loan lenders want to make sure their money will be safe, but as their whole business is based around lending money, they will be open to reconsidering you. Get your finances and credit in order, and you will be far more likely to be approved the second time around.
3. Find a Guarantor to Co-Sign on Your Boat Loan
If you don’t have the time to improve your own credit scores, or you have tried and are not able to get it up to scratch, another option is to find a guarantor to co-sign on your loan. This can be a family member or a reputable friend whose credit reports are already in good health. Essentially, they can be held accountable for repayment if you fail to meet your loan obligations. Make sure that it is someone who you can trust and who tests you, and this can be an ideal way to get the loan you need.
4. A Boat Loan Requires a Strong Debt to Income Ratio
Your debt to income ratio (DTI) is the relationship between how much you earn and how much you owe. To find this number, you will need to work out your total monthly debt outgoings and divide that number by your total gross income each month. Boat loan lenders require that this number is a percentage between 50% before they will approve a loan.
5. Boat Loan Repayments Can Be Very Expensive
Boats may be affordable for many people but that doesn’t mean they are cheap. Monthly loan repayments can be a big commitment so it is crucial that you ensure you are able to pay them. When your DTI is calculated, it is done so with the potential boat loan repayments factored into your monthly debt. Make sure that even after you have factored these in, your DTI is still below 50%.
Obtaining a boat loan is actually very simple if you build up a suitable credit score and you are sensible about your budget. Even if your finances aren’t ready yet, getting them up to scratch can be quite straightforward if you approach it systematically and prove to lenders that you are a responsible borrower and they can rely on their money being repaid. Choose the right boat to suit your lifestyle and it can be the best purchase you ever make.