Can You Get a Boat Loan With Bad Credit?

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The simple answer is even if your credit is less than perfect, it’s still possible to get a boat loan. In fact, in today’s lending climate it’s likely. In the last few years, lenders have been loosening up their purse strings and customers with challenged credit have had more options than ever for getting a boat loan. Obviously not everyone will be approved but qualifying for a boat loan has never been easier.

The Process for Getting a Bad Credit Boat Loan

This article will give you the information you need to determine if you should apply for a boat loan and what to expect in terms of the process if you do apply. As to be expected, a boat loan for a person with challenged credit is more involved than if the credit was perfect but it’s not as difficult as you might expect. If you understand the process and you’re dealing with a reputable lender, it won’t be long before you’re on the water and… rebuilding your credit as a bonus.

Step 1 Determining Your Credit Score

The first step in the process should be to determine the status of your credit profile. The best way to accomplish this is to get an up to date copy of your three credit scores. There are many resources available for accessing your scores, including AnnualCreditReport where once a year you can get all three bureau reports for free.

One thing to be aware of is not all of the information found on the various credit reports is accurate and your score may differ wildly based on the bureau or scoring model utilized. Most people are aware of credit scores but may not be aware of the variations between the different credit bureaus and scoring models.

There are three main credit bureaus used in marine lending. They are Experian, Equifax and Transunion. In addition, there are also multiple scoring models than can be applied by each bureau. The scoring models are algorithms that prioritize certain information to highlight various aspects of the credit profile. Some examples of these factors include, revolving debt, number of recent inquiries, time on the credit bureau and payment history.

As a result of the different bureaus and scoring models it’s possible to get scores and profiles that can vary significantly. For example, you could pull your credit online and find a score that is substantially higher or lower than your lender is finding. Due to this aspect, be mindful that the score your finding does not guarantee an approval or a rejection. Instead, be more concerned about the information on the report. Items to consider would be accuracy, recent payment history, debt to income ratio and derogatory accounts.

Step 2 Evaluating Your Credit Rating

Lenders are looking to approve loans for applicants that have had credit problems but have shown improvement.  If your credit is a disaster and you have nothing positive on your profile, you’ll need to work on your credit before a lender will approve your loan. This is an excellent guide on how to improve your credit. However, if your credit problems are in the past and your credit is on the rebound, now would be a good time to apply.

Comparative credit is another factor to consider with a boat loan. Prospective marine lenders will want to see that you have had similar installment loans in good standing at some point. An installment loan differs from a revolving line of credit in that there is a set payment structure for a specified amount and an end date for which the loan is paid off. Common examples of installment loans are for the purchase of vehicles or property. Revolving lines of credit are typically associated with credit cards. Please note that these examples are not absolutes however, so it will be a good idea to check the types of loans you have if you are not sure. Student loans do not qualify as comparative credit in the eyes of marine lenders.

If you do not have any installment loans with approximately a year’s history, you may still qualify for a boat loan. It will require that a qualified co- applicant be added to your application. Be aware that their credit will need to qualify, and they will be named on the loan.  This option will also report on both applicant’s credit bureaus and can be a great way to establish installment credit history for the future.

Step 3 Determining Your Debt to Income Ratio

Affordability will also be a factor in obtaining a boat loan. It might seem obvious but if you do not have enough income to justify the new boat loan, lenders will not approve your loan regardless of credit history. Affordability is determined via a monthly Debt to Income Ratio (or DTI for short).  DTI is calculated by dividing your monthly debt by your monthly gross income. The debt is based on monthly obligations reported on your credit bureau plus your rent or mortgage. It does not take into account your utilities, insurance, food, Etc.

An example of for calculating DTI would be:

$1435 monthly debt (including new estimated boat payment) divided by $5000 gross monthly income would be a debt to income ratio of 29%

The most common industry standard is to make sure that the monthly debt to income ratio is less than 50%. There are exceptions, however. It is possible that a lender will want a lower debt to income ratio based on income level. The idea is that they want to make sure that after you pay your monthly bills, you will have enough income left over for food, entertainment, utilities, Etc. The amount of leftover income will be different for a person making $10,000/ month versus $2000/ month. It is due to this reason that a lower debt to income ratio may be required for lower income levels.

Using the debt to income ratio is also a great tool for you to determine how much boat to buy. If a $50,000 boat throws off your DTI but a $35,000 boat fits, you’ll save time by shopping for boats that fit your budget. A good lender will be able to run scenarios to help you decide where your budget should be.

Working With the Right Lender

Once you’ve determined your credit profile and budget, the next step would d be to identify a lender. For credit challenged marine loans, it’s best to find a specialist. Lenders that are not focused on bad credit boat loans rarely offer approvals and most likely will lower your credit score by adding inquiries to your file.

Additionally, it’s a good idea to contact a prospective lender to determine their underwriting process. Lender’s that simply submit your file to multiple banks without underwriting the application first will lower your score unnecessarily. This type of protocol is often referred to as “shotgunning “and can prove very detrimental. Maintaining your highest possible score is critical to getting your best rate or possibly, even getting an approval.

Pre-Qualifying for a Loan

Prequalification is a good option if available. There are several advantages. First, it allows you to know that you can be approved so as not to waste your time searching for boats if you’re not able to qualify. The second is that it sets up your buying parameters so that you can search for a boat that fits your approval. Lastly, it helps expedite the buying process. As in most cases, items that are a good deal tend to sell quickly. If you have an approval ready to go, you can react quickly before someone else buys the boat out from under you.

Bad credit boat loans tend to have more restrictive requirements regarding the type, age and price of boats that can be financed. Lenders that approve these loans ideally look for boats that are newer, smaller and less expensive. That said, the vast majority of mainstream boats will qualify. 

It’s likely that your lender will require income verification. Usually it’s nothing more than recent paystub. In some cases, they may require a W2 or tax returns for additional verification. Self-employed applicants should expect to provide tax returns.

Value of the Boat

The one criterion that all lenders will be concerned with is value.  The marine industry primarily utilizes the NADA guides website to establish value. Boats that have a strong valuation on the NADA site can be easier to finance and usually allow for a lower down payment. There are other resources for establishing value, but for bad credit boat loans, finding a good deal on the NADA is a good idea.

Type of Boat

Boats that tend to be difficult to finance include, high performance boats, sail boats, old boats and custom boats. These are not an absolute “deal killer’s” but traditionally have been the most difficult to finance.

If your considering one of these types of boats, it’s important to address the boat you are interested in with a prospective lender. There’s no sense in having your credit run only to find out that the lender will not finance what you want to buy.

Buying the Boat

Communication will be the key to a smooth transaction.  When coordinating the purchase, it will be important to understand how long it takes to fund the loan and what documents will be required. This will allow you to set a realistic time frame for the seller to be paid and help expedite the process by being prepared.

Your lender will need to acquire some documents from the seller in order to complete the funding. These usually include copies of titles, registrations, current lienholder payoff information and ID number verification. In some cases, lenders will also look for photos and inspections. Most marine lending professionals will coordinate with the seller gathering these items but knowing what’s required will help inform the seller what to expect.

Final Thoughts

Getting a boat is a fun way to enjoy the outdoors with family and friends. In years past, people that couldn’t write a check or had challenged credit simply couldn’t get a boat. Now that has changed. The only thing that you’ll need to do is check your credit, determine your budget and find a boat that fits.  Using this guide as a template for the transaction will ensure that you find the boat of your dreams without the stress of the unknown.

Frequently Asked Questions

What is the minimum credit score for a boat loan?

Although it is sometimes possible to qualify for a boat loan with FICO credit scores in the 500s, generally you will need 600+ along with a low debt to income ratio to qualify.

How much do I need to put down on a boat loan?

To qualify for a boat loan with bad credit you need to put down a minimum of 10% and the boat must be less than 15 years old.

How long are boat loans usually?

For bad credit loans the maximum term length is typically 15 years. For those with excellent credit you can get terms up to 20 years.

How to get a boat loan for a private seller?

At SeaDream, you are able to buy from a private seller in addition to dealers, brokers and auctions. There are no penalties for private party transactions and the rates and terms are the same as purchasing from a dealer.

Author

Thomas Schumacher

CEO ~ SeaDream, Inc.
Tom Schumacher is the president of SeaDream Inc., the leader in boat financing. He as over 20 years of experience in the finance industry and is widely regarded as one of the industry experts on boat financing.

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