Navigating Marine Financing in Canada
Whether you're dreaming of a luxurious yacht or a nimble jet ski, understanding the nuances of marine financing in Canada is crucial. Different financial institutions throughout our industry can offer variable loan terms and competitive rates which have an impact on your monthly payments. There are plenty of boat loan options available; even for those who have rough credit history. This guide covers all of the fundamentals of watercraft financing, including credit score considerations, understanding secured loans, the impact of book value on lending, and the distinctions between different types of financing. Time to set sail!
Financing vs Buying Outright
While buying outright might be the ideal scenario, the high upfront costs often makes boat financing a practical alternative. Through financing, you can distribute and pay the cost over manageable monthly payments rather than one large payment up-front. On the other hand, loans will incur extra costs that vary based on your interest rate. You'll also be looking at lender and dealer fees to pay for, adding to the total cost of your new or used boat purchase. If you have the funds to comfortably pay for your new boat outright without having any ramifications on your day to day, that will always be the best choice. For everybody else, let's carry on!
Pro Tip: We've included a handy boat loan calculator on our website that you can use to get a realistic idea of your payment which includes lending costs. This will help you to make a better judgement on whether or not a boat loan payment is right for you.
Credit Score Requirements and Expectations
A borrower's credit history and score significantly influences boat loan options in Canada. With a good credit score, you may qualify for more options and rates around 7% from major banks and credit unions. These lenders, however, often have stringent approval processes and have recently been impacted by the current Bank of Canada interest rate increases. While considering loans from banks and credit unions should be the first option, many fill finance that their finance options are less ideal for boat purchases with the strict requirements.
Luckily, there are private marine lenders with interest rates starting at 9.9% who may be able to get you approved. Some even have more favorable rates and terms for borrowers than what the bank will offer with flexible payment options to fit your budget. For customers with bad credit looking to borrow, there are plenty of specialized boat lenders and in-house options throughout Canada. Most private lenders are found through dealerships or dealer brokers who allow customers to shop outside of their inventory, such as our boat loan partners at Revival Powersports.
Understanding Secured Marine Loans
Most boat loans Canada offers are secured loans, meaning the vessel itself serves as collateral. If a borrower defaults on the loan, the lender can seize the boat to recover the losses. In some provinces, they can even file a lawsuit along with seizure of the boat to collect costs. This security helps lenders offset the financial risks associated with non-essential, high-value items like boats and personal watercraft. In rare cases, a bank or credit union may offer an unsecured personal loan for boat applicants with pristine credit. It is important to ensure that the loan is fixed rate as variable rate loans can have a loan payment which adjusts with the economic tide.
How Book Value Affects Boat Loans
Lenders often use the book value of the new or used boat to set a cap on the loan amount. This cap can range from 120% to 200% over the blue book wholesale value. This practice helps lenders to minimize their risk in the event that a borrower defaults on the loan. Loan officers working with you should be able to give details as to the value of the new boat that you're buying.
You may consider receiving your loan approval through a reputable marine loan dealership who offers private sale financing. These dealers tend to have loan officers with multiple options to get flexible boat loans at the best interest rate with payments that fit your budget while also helping you to shop with book value in mind.
Boat Loan Down Payment Requirements
There are many factors which can lead to the lender requesting for down payment when you're looking to borrow for a boat loan. They may request you put money toward the purchase if the boat doesn't have a book value that fits their parameters, as discussed in the previous section. If you're looking to finance with poor credit, a lender may request money down to offset risk. Finally, if you're hoping to finance with a specific payment, cash down can help you fit your budget.
Boats vs Personal Watercraft: Understanding the Difference
Lenders differentiate between various types of watercraft as different risks are associated. For instance, boats typically involve higher lending caps and more flexible terms as they pose less risk, especially with comprehensive insurance coverage being offered. Personal watercraft such as jet skis or motorized surfboards fall into the category of powersports financing. This usually involves a smaller loan cap and shorter term to go along with the higher risk. Some lenders specialize in one type over the other, so it's wise to seek a lender that offer boat loans which cater to your specific needs.
Understanding Manufacturer Boat Loans
Some OEM (Original Equipment Manufacturer) dealers offer loans with potentially lower interest rates on new boats. However, these low introductory rates offers do often come with drawbacks, such as shorter loan terms, a higher down payment request, and a less lenient application process leading to fewer approvals. Moreover, some OEM boat loan options only offer the lower rate for a portion of the loan term, necessitating a refinance at a potentially higher rate later on. Still, this could be an option to consider if you are well qualified and are looking to shop for brand new boat. Just ensure that you are not tricked into an extremely low advertised interest rate before understanding the fine print.
Avoiding Lenders Who Charge Early Payout Penalties
Some lenders impose penalties for paying off the boat loan ahead of the scheduled term. If you anticipate that you may have your loan paid off early, it's paramount to scrutinize the details of your contract terms carefully and choose brokers who do not charge early payout penalties. Ask your loan officers to explicitly point out where in the contract it says that you can make extra payments or pay off the entire balance of the loan without any penalty.
How Paying a Boat Loan Could Help Improve Your Credit Score
Making your bi-weekly or monthly payment on time for your boat loan can have a positive impact on your credit score if the bank or lender reports to a major credit bureau. Always ask the lender or dealer broker that you are working with if your loan is reporting, how often it reports and to whom it reports to; Equifax or TransUnion. All of these factors play into how beneficial the boat loan will be in the long term with the goal being lower rates in the future.
Charting Your Course: Summarizing What We Have Learned
As you now realize, boat loans in Canada encompass a range of factors that can have varying impacts on your monthly payment. From realizing the range of rates based on credit scores, to understanding different types of financing - it's essential to arm yourself with knowledge before making a financial commitment on your marine loan. By understanding the loan variables involved, you're now one step closer to confidently lock in your loan and secure the funds to buy your next marine craft!
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