About Yacht Financing

How to pay for your yacht through a financer

If you have found a yacht which you wish to purchase, you may find that you need to finance the yacht to obtain the preferred yacht. But where do you begin? While there are some local financial institutions which offer boat loans, they typically do not extend that service to the larger loans needed to purchase a yacht, mega-yacht, or super yacht. For such financing, you will need to use a firm which specializes in big loans. However, before you seek your loan there are a few things that you should know.

What is your debt to income ratio?

There is a misconception that a person who has great credit will automatically be approved for a loan. While the credit score is a vital part of the approval or denying process, the debt to income ratio is usually the pivot point from which a decision is made. To calculate your ratio, you need to know the total income that you have as well as the total bills you pay every month. The percentage that your existing debt incurs is the debt to income. Please note that some lenders calculate in the potential dept you could incur into this equation. For example: if you have a 500k credit card but only have 300k spent on the card, some lenders would calculate the debt as the full 500k.

Ideally, you want to have below 35% debt to income before talking to a financial institution.

How much money do I need to put down on my yacht?

Depending upon your credit and other factors, backs may require up to 25% down on a yacht loan. Typically, if your credit is in good standing, the minimum capital required for a yacht purchase is 10 to 15% of the total cost. Total cost is not the same as the cost for the boat. Total cost includes all fees, filing costs, lawyer costs for closing on the boat, documentation, tags, taxes, and such. A useful tip when purchasing a yacht is that if you can put more money down on the boat, you will generally have a lower interest and payment. Additionally, if you can cut the financing down from 30years to 15 years, you may find that you pay more monthly but that you save thousands over time.

What does it mean when a financer talks about the potential ROI of the loan?

Sometimes, when you seek to have your yacht financed, you will find that there is talk or ROI. ROI stands for return on investment. As it pertains to your financing, the lender will weigh the depreciation of the vessel (either existing or projected) to the demand of the vessel in the market to determine the value if and when they should acquire the vessel. In other words, what would the yacht sell for if they were required to sell the vessel to gain the money back they loaned. The higher the ROI, the more apt you are to get the loan.

Why is the interest rates on financing a yacht higher than a house?

The reason that you will find most financing options for yachts at a higher rate than that of a house mortgage is because of financial loss probability on the financers part. Firstly, if a person does not have ideal credit then the interest will be higher (as it would be with any loan). Secondly, the institution estimates that should a person come upon hardships that he or she will be more apt to skip the payment on the yacht over the payment of a house mortgage.

Will yacht insurance be required?

Yes, insurance on your boat will be required. The extent of the coverage will be decided by both the state requirements as well as the financer. In most instances, the boat will have full coverage. The deductible options may vary, and you may have the option of shopping around for insurance. However, some financers have partnerships with insurance agencies and require that you use such agencies to approve a loan.

Should you use a brokerage for your yacht financing?

Vessel Vendor would encourage you to use a broker for buying and selling your yacht. There are many variables which go into the financing and the transfer of assets from one party to another. Inspections, documentation, and the loan expectations from the financial institution and person who is obtaining the loan are just a few things to consider. If obtaining financing for a yacht privately, it is easy to overlook a critical element of the loan process. This could result in the underwriter needing to amend the terms of the loan (which could cost you a substantial amount of money) or a denial of the loan.

Our yacht brokers have years of experience in helping qualified boat buyers obtain yacht financing. Should you wish to learn more about yacht financing, boat lending or wish to inquire about any yachts for sale on our site, please call 561-600-5006 or use the ‘contact us’ option.