Tips to An Affordable Yacht Loan
Need a yacht loan to make your dream of yacht ownership real? For most people, it feels like a nightmare on the way to their dream. But, it needn’t be. With a lot of research and a little planning, you’ll be sailing into the sunset knowing you got an affordable yacht loan that suits your financial situation.
Are You Qualified? What Marine Lenders Look For
- Liquid assets for the required down payment and coverage of the loan payments for a year in case income situations change
- Your debt-to-income ratio
- Lenders would like you to have boating experience and this affects their approval
- It helps to have credit history for other big-ticket items–another boat, or a home would usually work
Common Factors to Consider for a Boat Loan
Long before you plan to purchase your yacht, evaluate these financial indicators for yourself and you will be prepared to successfully present your case for a yacht loan:
- Find out your credit score and any reasons why it may be low. Work diligently to increase your credit score to give yourself more loan options and reduce your interest rates. Often, if you have bad credit for a reason such as a layoff a few years ago and your most recent credit history is good, writing letters to creditors can get your case reviewed and the dings against your credit history removed.
- Determine how much you can afford to spend on a boat. Consider all sources of income and your current expenses as well as common yacht ownership expenses such as mooring and dock fees, marine insurance, winterizing and storage, fuel, repairs, and maintenance.
- Identify any assets you may have that you can use for collateral to reduce your interest rates.
- Look at your current credit authorization levels (credit cards, personal lines of credit, etc.) and how much outstanding debt you have. Be sure you are using less than 80 percent of all unsecured credit.
Especially if you have a lower credit score, you will want to ensure that your debt-to-income ratio (DTI ratio) is lower than 45 percent.
What is Debt-to-Income Ratio?
Your DTI ratio is the total of your minimum required monthly payments divided by your gross monthly income.
Monthly payment obligations include:
- Mortgage payments or rent
- Credit card payments
- Auto loan payments
- Child support that you pay
- Alimony that you pay
- Financial obligations that you can’t easily reduce such as utilities, food bills, and other living expenses.
Why Do I Need to Know My Debt-to-Income Ratio?
Lenders use your DTI ratio to predict your ability to pay them back.
Another great reason to know your DTI ratio is because if it is too high (meaning you have too much debt to your income), you can lower it by cutting back on expenses like entertainment to pay down more debt. But, of course, this takes time so it is important to start looking at your DTI ratio and the other considerations mentioned above well in advance, perhaps years. Another option to lowering your DTI ratio is to increase your income.
Calculate Your Debt-to-Income Ratio
Add up your minimum recurring debts and basic monthly living expenses then divide that number by your gross monthly income amount. The resulting number is your DTI ratio. Not into math? Use this debt-to-income calculator to discover your current situation.
See our recommended marine loan calculators.
Get Pre-Qualified
Get pre-qualified for marine financing in advance of purchasing a new catamaran with one of our recommended marine finance companies. Getting pre-qualified is the initial step in the boat loan process. Applicants supply their overall financial picture (income, assets, debts…). Some lenders like LH Finance will not pull credit reports…ask us for recommendations of a lending specialist for your situation. After evaluating this initial information, your lending specialist will inform you of the loan amount that you may qualify for. Contact us for more information about marine lending resources.
More Boat Buying Info & Resources
Read here how the yacht buying process works: Overview Of How to Buy A Yacht: 10 Steps To Success
Get more tips on buying a yacht.
