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Whether you’re the first-time boat buyer or you’ve been through the process every three years for decades, it pays to shop around for the best deal—and more importantly, for the best service—when choosing financing and insurance.
The experts will be happy to tell you that the first step is to talk to someone who specializes in the marine industry. Your bank might be great for car loans or even your home mortgage, but buying a new or used boat requires some specialized knowledge and experience. The same with your regular insurance agent, who might know everything there is to know about cars, houses, and even your life policy, but not much about saving you money on your boat coverage.
Boat loan basics are the same as your car loan and mortgage: What’s the interest rate? How much is the down payment? How long do I have to pay it off? But unlike car or home loans, there’s not much difference in what’s offered from one lender to the next.
“Everybody in the market has the same kind of loan product,” explains Jim Guilfoyle of Provident Bank in Baltimore. “All the programs are very, very similar. So you need to shop around to get comfortable with the lender who can provide the best service. Their expertise is key. Find someone who can provide survey referrals for used boats, U.S. Coast Guard documentation for larger boats, titling and multiple fund sources if there are special needs.”
When you’re shopping for financing at a boat show, for instance, Guilfoyle cautions not to jump on a deal just because they offer a low down payment. “Some think ten percent down is a good deal,” he explains, “but unlike homes, boats depreciate, and if you don’t keep up with the depreciation in payments, when you go to sell it or trade it in, you may owe more than the boat’s worth.”
When the amount you owe on the loan is greater than the value of the boat, that’s called “negative amortization,” also known in the marine lending industry as an “upside down” loan situation. You can avoid this, generally, with a higher down payment of up to 20 percent of the purchase price.
But talking over your personal finances with a boat loan specialist can help you make the best choice for your situation. “You have to decide whether you want money in your pocket or equity in the boat,” says Bill Scott of Scott Financial, also in Baltimore. “Some people don’t want to take money out of the market, so they’ll go for a lower down payment.”
“Service becomes a very important issue,” says Pat Miller of Anchor Finance in Deale, south of Annapolis. “People want fast turnaround time, and they want it done efficiently.”
“Service is what makes the difference,” agrees Don Parkhurst of SunTrust Marine Lending in Annapolis. “Service and convenience. For example, we have an internet site where you can apply on line twenty-four hours a day. You’d typically get an approval within twenty-four hours. Ultimately, you’d have to come in and sign the papers, but the rest can be handled online. Since we’re a large bank, we have offices throughout the Southeast, and we can have settlements at any of 11,000 branches. We also do settlements by mail, overnighting documents directly to the customer. And our people will often go out to a broker’s office and do a settlement right there, over the weekends, in the evenings—it’s not a case where we’re limited to traditional banking hours.”
“Basically, it comes down to the lender’s ability to accommodate you if you have a special need,” says Lynda Kemppainen of Trident Funding Corporation in Annapolis. “From a first time buyer to a megayacht buyer, each client may have special needs or a unique situation regarding their credit profile. Trident can offer a borrower a wide variety of programs and can generally match their needs better than a bank that may only offer one program.”
“Special needs” might be a low down payment, or if you’re buying your first boat, or an older boat, or especially a wooden boat, or if you have “credit history issues” or want to live aboard.
Boat shows are a great place to get acquainted with the services offered by the various companies that do business in your area, and most lenders will encourage you to apply for a loan on the spot, but be sure not to apply with more than one. “If you apply to multiple companies, they’re each going to pull a credit report,” cautions David Trostle of Sterling Acceptance near Annapolis. Ironically, he says, “one of the problems that may come up is too many recent inquiries. That can have a substantially negative affect on your credit rating.”
So choose a lender you feel comfortable with and let them do the work for you. In fact, you can line up the loan before you even start shopping for the boat. “It doesn’t cost anything to apply for a boat loan,” Trostle explains. “We can give you pre-approval for a price you can comfortably afford, so that will increase your negotiating position with a dealer.”
Another thing to bear in mind is that many boats qualify as a second home. “The interest can be deducted as a second home,” Trostle reports, “as long as the boat has a head, a galley and a berth. That lowers the effective rate of the loan one to two percent. In the initial years of a loan, most of the payment is interest, so that can be a significant savings.”
And once you’ve established a good working relationship with a lender, hang in there. After all, this is probably not going to be the only boat you‘ll ever own. The average boat owner buys a new boat every forty-one months. “Our rates are fixed for fifteen or twenty years, but the reality is that someone isn’t going to keep that loan that long,” explains Pat Miller of Anchor Finance. “Mostly, if it’s a twenty-foot runabout, they’re going to sell it in two years.”
“People are looking for personalized service,” says Alan Swimmer of Beacon Marine Credit based in Old Lyme, Connecticut. “They’re looking for lenders who understand their financial situation and provide a quick approval and close in an expeditious manner. And I think to some extent, people are looking to build a relationship, so when they go to buy their next boat, they’re not starting from square one. About half of our customers are repeat customers.”
“I’ve been in business since 1985, and we do a lot of repeat business,” says Bill Scott of Scott Financial Services in Baltimore. “We have some customers who have bought four or five boats through us, and a lot of those loans we’ve sent back to the same bank. They’re a preferred customer, so they might get a little reduction in the rate, or something on the down payment, because they’ve got a good track record.”
No matter how long you own your boat, you can always refinance the loan if interest rates come down. “We’ll start to see some refinancing as rates start to come down,” says Jill Tomsuden of Essex Marine Credit in Annapolis. “It’s very easy on a boat. There are no prepayment penalties and hardly anything in the way of closing costs. Generally, for a loan amount under $100,000, if the rate comes down one percentage point, it makes sense to refinance.”
But you don’t have to actually buy a boat at all. Now you can lease a boat, just like you might lease a car. Russo Marine Financial Services offers leasing in addition to traditional boat financing. They’ve just established a new branch office at the Bay Bridge Marina on Kent Island on Maryland’s Eastern Shore. Gerry Pitts moved down from the Boston area to tap into the Chesapeake market.
“Leasing is a good alternative,” Pitts explains. “If you were to lease a boat for thirty-six months, your payment might be twice what you’d pay monthly for a loan, but it’s the same as a car lease. At the end of the lease, you can opt to return it, buy it at a pre-arranged price, or even sell it at a profit, if it’s worth more than that price.”
Some services provide both financing and insurance. West Marine, for instance, offers financing in partnership with Deutsche Financial Services, as well as insurance through McGriff, Seibel and Williams Insurance Agency based in Birmingham, Alabama. “We’re trying to build customer loyalty,” explains Kara Sirles, senior manager of business development for West Marine. “Every single boater out there is going to have a variety of needs. If they’re coming to us for their boat parts, we want to be able to provide them with these services as well.” West Marine is one of the many services offering information online.
Another big group offering both insurance and finance is the membership organization, BoatU.S., headquartered in Alexandria, Virginia. “We’re very modern,” says Jim Nolan, vice president of underwriting. “You can log on to our website, and there are sections on both finance and insurance with online applications. Depending upon what size the boat is and what your personal record is you can get an insurance quote instantly, or at least the next business day. The time frame for the finance is just a little longer.
“You can also use the toll-free 800 number and go over that information with someone on the phone,” Nolan continues. “For a first-time buyer, that might be the way to go, because you can get answers on the spot from an expert. That’s all they do, so they’re very adept at dealing with that whole aspect of it.”
BoatU.S. has been in the marine insurance business for thirty years. In order to qualify for insurance or financing, Nolan says, “you’d eventually have to be a member, but the benefits are worthwhile whether you take the insurance or not, because of all the discounts and benefits. The fourteen dollar cost of membership becomes pretty negligible when you consider all that.” BoatU.S. currently boasts 515,000 members.
Marine insurance, like boat financing, is a specialized field. But there are some basics to look for when shopping for coverage. “It really is a different world from car insurance,” explains Al Golden of International Marine Insurance on Kent Island. “Everything about it is different. But the vast majority of people get a policy in the mail and put it in a drawer and hope they never have to see it again. We encourage people to read it so they understand what they’re buying.”
Most important, Golden says, is, “Make sure that it’s an ‘agreed value’ policy, so in case of a total loss, you and the agency have both agreed on what the value will be ahead of time. For partial losses, make sure you’re covered for replacement costs, so that an old piece of equipment is replaced with a new piece of equipment, not just the value of the old piece, which has depreciated.”
“If you’ve done your homework, there won’t be any surprises,” advises Suzanne Redden of American Yachts, LTD, of Baltimore. “The insurer who switches around just to get a better price is likely to be disappointed when a claim occurs. If you’re paying substantially less, it’s probably because you’re getting substantially less coverage. We like to keep our clients year after year after year. We encourage that by offering loss-free credits. If you haven’t filed a claim in a number of years, you can generally save between five and ten percent, or even fifteen percent of the premium.”
Generally, a sailboat is about 1/3 less expensive to insure than a comparably valued powerboat, and where you use the boat makes a big difference. “The Chesapeake Bay is the lowest rated territory in the country, including inland lakes and waterways,” Al Golden explains. “It’s got a mud or sand bottom as opposed to rock, coral or stumps. The average depth is fourteen or fifteen feet, which means that if the boat does sink, it won’t sink in water so deep you can’t recover it. It’s also well protected from hurricanes, and the tidal range is only eighteen inches, so you avoid problems you might find in New England or other cruising grounds.”
You can also save a lot by simply increasing the deductible. “The typical deductible is one percent of the hull’s value,” explains John Martin of Jack Martin & Associates in Annapolis. “By taking a higher deductible of two percent, they’re going to save a significant amount on their insurance. If they absorb the cost of repairing the smaller incidents that happen without making a claim, they’ll have the added benefit of a claims-free record, which can save anywhere from ten to twenty percent on their premium. When you add that kind of savings over the years, it becomes even more cost effective.”
Marine insurance and finance are specialized fields, but fortunately, there’s a boatload of experts to talk to. Take your time and choose the ones you feel most comfortable working with. .
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