Bad credit is not a hindrance to boat financing with subprime boat loans as proof. They are made especially for borrowers with middling and non-prime credit scores, thus called “mid-tier” or “sub-prime” marine loans. Think you can qualify for this type of boat loan? Talk to a lender now!»
Subprime Boat Loans and Lenders
Boats are considered luxury items. Unlike houses or cars, they are used for recreational purposes. Lenders generally see recreational vehicle loans such as those for boats, motorcycles, and RVs as high-risk loans.
To minimize their exposure and ensure the soundness of the loan, they require high credit scores among their many parameters when they underwrite such a loan. Credit scores largely determine the pricing of the loan, its rate especially.
As FICO scoring would have it, a credit score is a mixed bag of payment history, credit utilization, credit history, credit in use, and new credit. Vantage, FICO’s competition, relies on credit information being given by the three credit bureaus.
Subprime Boat Loans and Terms
Against this backdrop, there exists this subset of loans for people with credit challenges. Bad credit boat loans vary among lenders but here’s what to expect when applying for a subprime boat loan.
- Boat: The usual age is 15 years and younger (brand new).
- Credit utilization: Not higher than 80% for unsecured credit, e.g. credit cards. Credit utilization ratio is an important indicator of risk, raising red flags if a borrower is in trouble, financially.
- Collateral: Lenders might ask for a personal asset, e.g. car, house, or bond certificates, to secure repayment of the loan. With secured loans, the payback term is longer.
- Down payment: Typically between 10 and 20%. A larger down payment could lower the rate on the loan.
- Debt-to-income ratio: Not higher than 45%.
- Loan term: Usually longer, some loans extend to 12 years.
- Negative credit events: Bankruptcy, foreclosure or short sale is allowed, subject to waiting periods set by the lender. Some lenders require proof that the borrower has re-established his/her credit after a negative credit event.
Subprime Boat Loans and Prospects
The importance of credit scores is felt the most when applying for credit. Being in the subprime tier, a credit score of 500 or 550 lessens the leverage you have over your loan’s costs. But there are ways to better the situation now and possibly later.
One, try looking for boats that are less pricier to finance, e.g. used boats. This could lower the cost of your loan.
Second, make sure you check your credit reports every now and then, ideally before applying for credit.
Third, use your subprime boat loan to build your credit. A stellar payment performance on your boat loan, which is an installment debt, could open better credit opportunities in the future.
You can certainly tap financing for your sailboat despite your bad credit. Just set your expectations right and make sure you do your homework when shopping and comparing loans to get the best possible deal. Start shopping for subprime boat loans and more!»