According to reports, boat sales are hitting record highs and are expected to carry on climbing.
Are you looking into buying a yacht?
If so, we have some good news. Firstly, survey results show that boaters are happier and healthier than their non-yachting counterparts. What’s more, financing a yacht purchase is simpler than a lot of people think.
One of the most common forms of yacht financing is asset-based financing.
Asset-based financing can hold a number of advantages over other forms of luxury boat loans. However, it’s important that you know how these types of yacht loans work before you commit. Otherwise, you might place your newly acquired yacht at risk.
Here at Shearwater, we are experts in yacht financing and can walk you through how asset-based lending works when it comes to financing a boat. Want to learn more? Keep reading.
Asset-Based Yacht Financing: What Is It?
Firstly, what is asset-based financing?
If you have ever taken out a car loan or a mortgage, then you will be familiar with asset-based financing. Simply put, asset-based loans use the item purchased with the loan as collateral for the debt.
When it comes to financing a boat with an asset-based loan, this means that the yacht you buy will stand as collateral for the loan amount. If you default on the loan, the lender has the right to repossess the vessel.
Asset-based loans are typically simple interest loans with fixed rates and fixed terms. In most cases, the terms of asset-based yacht loans are between 15-20 years. Interest rates vary and are dependant on factors such as your credit score, liquidity, income, etc.
However, in most cases, they are almost always lower than for unsecured loans.
The Benefits of Asset-Based Financing for Yachts
Asset-based financing for yachts can be an ideal loan solution. Because the yacht stands as collateral for the loan, borrowers can generally enjoy lower rates of interest and better terms.
What’s more, asset-based loans for financing a boat are often easier to qualify for than unsecured financing. In some cases, banks and other lenders may view luxury boat loans as riskier than other loan types. The reason for this is they assume that if you suffer from financial misfortune, your boat payments might be the ones you default on before those on your primary home or vehicle.
With asset-based loans, the lender you apply to does not have to worry about this because they have the vessel itself as security should you cease to make payments on the loan. Because of this, asset-based loans are quicker and easier to get than unsecured loans.
However, there are also a few cons to this financing option that you should be aware of.
If there is a chance that you might default on your loan, asset-based financing could cause you to lose your yacht. Of course, unsecured loans aren’t risk-free either. If the lender takes you to court, you could face wage garnishments for the amount you owe, as well as court costs.
Influencing Factors in Asset-Based Financing
Asset-based loans are usually simple and straightforward and contain fewer covenants that unsecured loans. As mentioned above, they often offer lower rates of interest as well.
However, the exact rate of interest you will be able to secure is determined by a few variables. These include:
- You credit rating
- Your net worth
- Your debt to income ratio
- Your income stability
Having a good debt to income ratio, a high level of income stability, and larger net worth can help qualify you for lower interest rates. As will a good credit score.
Generally speaking, credit scores of over 700 will qualify you for some of the best rates. Below this, and you’ll be eligible for less attractive interest rates.
Another factor that will influence what you pay in interest is your downpayment. Downpayments on yacht loans are typically anywhere between 10%-20%. If you make a larger down payment, you will pay less interest because you will be borrowing less. What’s more, this might also give you access to better rates.
Tips When Applying for Financing for Yachts
Now that you know what asset-based yacht loans are and how they work, we want to leave you with a few simple financing tips before you go.
Firstly, when considering financing for your yacht purchase, be sure to factor in any additional purchases you might need to make with the yacht. These could include electronics and navigation equipment, anchoring packages, and antifouling. As long as these expenses qualify as tangible assets, you will be eligible to roll them into your loan amount.
This is an important area to take into consideration, as buying a boat can often come with a number of side expenses.
If you want to fast track your loan application process, another tip is to gather your financial documents together before applying. If you want to reach out to lenders before you do this, that is totally fine. However, getting hold of the necessary paperwork before can make the process go quicker.
Lastly, when looking to get financing for a boat purchase, it is often best to go with a lender that specializes in yacht loans. Their familiarity with the industry may allow you to get better rates, easier financing, and insider boat financing tips.
Are You Looking for Flexible Yacht Financing?
If you are looking for yacht financing to buy the boat of your dreams, knowing how asset-based loans work is essential.
What’s also essential is finding a reliable lender that can offer you the best terms and flexible options.
If you are looking for flexible, customized yacht financing that is tailored to your needs, you have come to the right place. Here at Shearwater, we pride ourselves on being able to structure our deals to comply with our client’s individual requirements.
What’s more, because we are a direct lender, and our funds come primarily from private investors, we can offer you some of the best rates. Yacht financing is our specialty. Let us make your boat loan process a smooth one.