Boat Loan Basics - Credit History
August 9, 2015
We often look at and discuss credit score for boat loans first. However, your credit history is just as important. There are several main items to review including number of trades lines, comparable credit, length of credit history, any derogatory credit, and new credit. Without good credit history, you simply can't get a loan.
Let's discuss number of trade lines first. The boat loan lenders want to see that you have established and paid accounts to prove that you will make this boat loan payment too. They want to see a history of some installment loans (cars, boats, mortgages, rvs, ...) and 3 to 5 revolving accounts which is basically credit cards. There are two major issues here. People that are young and don't have any credit and those that use cash to pay for everything. Both situations are very hard to obtain a boat loan.
Young people don't have established credit yet. They have to start somewhere. However, a recreational loan isn't the best place. Most lenders won't provide boat loans for someone without credit. A local bank or credit union may be the best bet here. Or starting with a car loan and then years later going for the boat loan. The second difficult boat loan situation is the person that pays cash. Whether it is someone who has retired and hasn't needed a loan in quite a while or someone who just saves and pays cash. No credit history a lot of times equals no loan.
Similar to trade lines is comparable credit. Comparable credit is having a loan that is comparable in loan amount and loan type. A boat or yacht loan is an installment loan. So the banks want to see a loan of similar amount and type of installment loan. If you are looking for a $50,000 boat loan, they will be looking for at least a $50,000 car loan or mortgage or prior boat loan. A lot of banks are $1 for $1. Some banks don't care as much and some will be .5 to 1. The .5 to 1 banks will look for a $25,000 comparable loan for a $50,000 loan.
Length of credit history is also important but many people often qualify here unless you are new and young. Keeping a credit card open for many years is a definite plus. Those 3 to 5 trade lines mentioned above at a best case scenario would have a 2 year history on them. From a history standpoint, you don't want to be closing one card to open another with a lower rate on all of your cards. You should really keep 3 or 4 good cards for as long as you can. You don't have to keep balances but you should use and pay them off. Most items fall off of your credit report after 7 years so you should at least keep active on an installment loan every 7 years.
Derogatory credit can be simple late payments to more serious collections, bankruptcies, and liens. Late payment history is another real issue with boat loans. Banks don't want to take the chance that their loans will not perform. Late payments are a sign that payments may not be made. If possible, don't make a late payment on a mortgage. That is a deal killer for a lot of banks. Remember, there is 7 years of history here. Two or three late payments a year really add up. We have many many boat loan applications denied for simple late payment history.
Collections, bankruptcies and liens are all immediate denials for most lenders. There are definitely lenders with higher interest rates out there that will do these loans. We don't have one conventional lender working with bankruptcies right now. Open collections must have a very reasonable excuse. Medical collections are often explained. However, utility collections are a big issue and often will not be overlooked. Liens are typically from unpaid taxes at a state or federal level. If you haven't paid your taxes, don't expect to get a boat loan. Open judgements must also be explained. All of these are against many bank policies to approve a boat loan.
Lastly is new credit. As mentioned above, lenders like to see credit history of 2 years and more. Some times we see someone who has either come in to money or decide they need to upgrade and get a car, mortgage and want a boat within say a 6 month period. The banks don't like it especially if you don't have a lot of prior history. It makes them worried as you don't have history to prove that you can make this type of debt load. Try to put some time in before getting a boat loan if you have made a lot of big recent purchases.
I keep saying the banks this and the banks that. Please understand this is normal loan underwriting based upon prior lending experience. They all have risk analysis and experience ratios and lend accordingly. He with the gold rules. They have policies and there isn't anything you can do to change them. If you don't get approved with one, there probably is no use trying to argue with them. Try somewhere else. Credit pulls is also part of that history so don't let too many people pull your credit especially if you are on that 700 borderline.
If you have any questions about boat loans, rv loans, yacht financing or boat refinancing, please give me a call at 954-847-1521.
Thanks and have a great day!
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