12 Ways to Take the Moans Out of Houseboat Loans
By Chris Caswell
We all know that buying a houseboat is fun. Paying for it, however, is not, and negotiating a boat loan is something like haggling with used-car salesmen while trying to take a high school algebra test. There’s usually a lot of mumbo jumbo about rates and terms and percentages and, if you’re like most of us, having your credit report scrutinized is right up there with a root canal, too. The good news is that, with a little bit of knowledge and by doing your homework, you can take the moans out of loans and end up with the houseboat you want as well as a financial package that is competitive.
1) Set a realistic budget. That incredible houseboat you saw at the last boat show has everything you want, including a price tag that makes your salary look like pocket change. So decide how much you can spend each month to make the payments, and how much you can use as a down payment. With those amounts, you can “back into” the loan that you can use on your next boat.
2) Get your own credit check. Credit companies will provide you with a copy of your credit report for about $10, and it’s a wise investment. Every lending institution checks a credit report like a doctor checks your pulse. Both want to know if you’re still alive. Your credit report may have a few small glitches (remember that notice you got saying you hadn’t made the last payment on your stereo?) that can become big stumbling blocks if the lender sees you as a no-pay or a slow-pay. Get a copy of the report and sort out any problems, either by paying them off or at least by filing a response that the black mark isn’t correct. Coughing up a hundred bucks to pay off an old debt may save you thousands in higher interest on your loan.
3) Get pre-approved. Most lending institutions will do the loan processing even before you find your dream houseboat, and having a loan preapproved can be a powerful bargaining tool with a dealer or an owner. It’s as good as walking in with a paper bag full of cash, and you can get right down to the serious negotiations.
4) Shop your lender. The boating market is filled with companies eager to loan you money, and you’ll also find a host of other ways to buy that houseboat if you take the time to “think outside the box.” Marine lenders have several major advantages, however. First of all, they deal with boats every day so they’re ready to respond quickly and knowledgeably. Second, they live in this niche market, so their desks aren’t cluttered with applications for tractor loans. And, because they know that boat loans are often more secure than other types of loans, you may get a better deal, too.
5) If you have a relationship with your bank, you should explore that as well, bearing in mind that they probably don’t know much about boats, and credit unions fall in the same category. A home equity loan may be one way to convert the equity in your home into a houseboat, so check that out, too. And, if you’re buying a houseboat from a dealership, it may have a competitive loan package ready to go. In all cases, refer to Rule No. 1: Be sure to comparison shop. Getting a houseboat loan is like buying a watch in Switzerland--there are plenty to choose from.
6) Plan your term. As we all know, most houseboat owners don’t keep their boats long before moving up, and three to five years is usually how long you’ll keep yours. Some houseboat loans are made under the “Rule of 78s,” which, in simple terms, means that most of your early payments are for the interest only and you don’t build up much early equity. This can make it tough to sell your boat in the first few years, and it’s even possible to get “upside down” where you owe more than the boat is worth. For example, in a 10-year loan, you’ll pay 50 percent of the interest in the first three years but not much of the principal.
7) Beware of prepayment penalties. These are rarely found on loans from marine lenders because they know that you probably won’t keep your boat for the full duration of the loan, but these can slip into the contract occasionally and can add considerably to the cost of your loan if you want out before it matures. Don’t ever accept such a loan contract.
8) Avoid variable-interest loans. Sure, you’ll pay a little bit more for a fixed loan, but a variable rate is a gamble because it changes regularly and, for reasons known only to the cosmos, the rate always seems to go up, not down.
9) Work the percentages. When shopping for a loan, be sure that you’re comparing apples to apples. The annual percentage rate (APR) is a sure way to see who has the best loan, but APRs can be difficult to compare with loans of different lengths. Let’s say you take out a $10,000 loan at an APR of 13.31 percent for seven years, which means you have payments of about $183 a month and a total repayment of $15,424. If you stretch the same $10,000 loan to 10 years, the APR drops to 12.76 percent and the payments are down to $147, but the total cost of your loan jumps to $17,749. This is an increase of $2,300 in return for lowering the payments by just $36. When comparison shopping, try to minimize the variables as much as possible.
10) Don’t pay cash. It’s tempting, but why let the government off so easily? You can usually deduct the loan interest from your income taxes, so why not share your houseboat with Uncle Sam? By the way, don’t forget to claim it as a second home and take those deductions, too.
11) Leave some in your pocket. It’s easy to buy right up to your credit limit, but don’t forget that there are other costs to houseboating, too. You need to have enough money available to cover fuel, dockage, insurance, repairs and even to buy that new gas barbecue. If you’re houseboat proud but cash poor, you won’t enjoy your houseboat very much.
12) This is one extra piece of advice: Take care of your houseboat because it’s a major investment. When it comes time to sell and move up, you’ll recover more money from a well-maintained houseboat that you can use to reduce the cost of your next one!
Chris Caswell is the former Senior Editor of Yachting Magazine, and the host of the Marine Voyager boating series on Speedvision. A boating writer for three decades, he admits to owning more boats than he wants his wife or banker to know about, and has the largest moustache of any marine journalist.