The value of your boat matters to lenders when you apply to finance its purchase. Lenders base the amount they are willing to lend and the interest rate on that borrowed amount on the book value of the vessel. Overall, lenders will decide whether the boat in its present form is worthy to be financed.
A Boat’s Value
It’s just like when buying a house or a car, the lender will order an appraisal or run a valuation respectively. This is to ensure that the value of the asset is adequate as collateral for the loan.
With boats, age plays a role in the vessel’s value and it’s up to a lender to decide just how old it can approve for financing. For example, some lenders would finance vessels that are aged 5 years, 10 years, 20 years, and so on.
The older the model, the harder for financing to come by. It may have to do with practicality as it could be harder to assess the value of an older powerboat compared to its newer counterpart.
Lenders usually check with NADA or BUCValu® to determine a boat’s worth in the market. In the case of BUCValu®, it calculates the value based on the specifications given including the engine. For boats with outboard motors, the outboard engine is not included in their valuation.
Ideally, the boat’s price tag should match its retail value. If it proves to be undervalued, the lender can reduce the amount it is willing to lend and ask you to cover the difference in down payment. Say the lender provides up to 80% of the sailboat’s market value so you will have to contribute the remaining 20%.
A Boat Loan’s Rate and Term
Aside from the impact the boat’s condition has on the loan amount, it can affect the interest rate on the loan. Loans securing models that are 20 years old can command higher interest rates than those less than five years old.
Likewise, lenders can offer longer loan terms on newer watercraft than if they are older, e.g. a 20-year-old boat can have a term of 15 years instead of 20.
Indeed, the boat’s condition – as determined by its age and value – is certainly an important consideration in this type of financing; it can dictate the terms of the loan and how affordable it can get.