You’ve decided to take the leap and buy the yacht of your dreams. What’s the next step? You need to start considering the yacht financing options available to you.
This article will explain some of the crucial aspects of asset-based finance loans to provide you with insight on what exactly is involved in financing your new vessel. Before we jump into specifics, however, there are a few things you should know upfront as you begin researching your yacht financing options.
Another thing to keep in mind is that an older vessel may not be as easy to finance. Typically, yacht financing is easier to acquire on vessels within 15 model years.
Tips for Financing a Yacht
When the time comes to finance the vessel you are wishing to purchase, there are a few things to keep in mind as you prepare to apply for the loan.
If you are looking for financing, it is probable that you do not have the cash lump sum on hand to buy the yacht outright. One major thing to remember is that even though you can secure yacht financing, you will still likely need money on hand for the down payment. You need to ask yourself what you can afford, how much you are actually willing to spend, or what is the absolute highest amount you are willing to put down. It will depend on the type of loan you are applying for, but you may be required to put a 10-20% down on the loan amount.
The next step is to determine what you can afford to pay monthly. Although the asset-based finance lender will approve you for a certain amount of financing based on their loan terms, that doesn’t necessarily mean it will fit your monthly budget. You need to determine what you can actually afford before you start the loan process.
You also need to know your credit score prior to applying for traditional yacht financing. With asset-based yacht financing there is no need for a credit score.
Now comes the best part – making an offer on the vessel of your dreams! Once you’ve negotiated and settled on the price, it’s time to take this price to the lender to secure the loan.
Boat Loan Basics
When the time comes to secure financing for your boat, it’s important to understand what the basics of asset-based finance entails to ultimately choose the finance option that works best for you.
1. Lenders
You may not be aware of this fact, but financing your boat through a bank is not your only option. Asset-based lenders offer loans that are similar to mortgage or automobile loans. Your vessel serves as the collateral for the loan, giving the lender the right to repossess the yacht if you default on your payments. Even if you are somewhat credit-challenged, asset-based lenders can arrange loans that meet your requirements.
2. Types of loans
There are a variety of loan structures that can be used to finance a yacht. A fixed-rate, fixed-term, simple-interest loan locks in a set interest rate to keep your monthly payments consistent for the term of the loan. A variable-rate loan has interest rates that change over the course of the loan, with the introductory rate typically being the lowest. Another option is the balloon payment loan, which requires you to pay the full amount due at the end of a specific term. There are also options for where title is held in the form of a loan or lease.
Types of Finance Options
Regardless of the type of loan you choose, the process will be the same. Part of that process is understanding the types of loans available and which type of loan works best for you. Some of the most common types of boat loans are:
- Dealer financed loan
If you are buying your boat from a dealer, they may have loan options available that you can take advantage of. Terms and conditions will vary by dealer, so be sure to look closely at the fine print and compare their offer with other lenders.
- Personal loan
A personal loan is typically reserved for people with excellent credit and does not require collateral. Because of this, these loans also typically have a higher interest rate.
- Collateral loan
A collateral, or asset-based, loan is comparable to a traditional home or auto loan. The money you receive from the lender is used to purchase your boat, and the boat becomes the loan collateral. If you default on your loan, the lender will take the boat into their possession and sell it.
After Financing
Now that you have a better understanding of what is involved in boat financing, there are a few things you still need to be aware of before taking your boat home. You will need to secure registration, insurance, and a trailer for towing your vessel.
- Insurance
Like auto insurance, there isn’t a one-size-fits-all option for boat insurance, and just like car insurance, you must have boat insurance in place before you take possession of the vessel.
- Registration
You will want to research where you would like to flag the vessel. This can have tax and insurance effects.
Let’s Talk Yacht Financing
Shearwater Global Capital is a specialty asset-based finance company committed to providing tailored financing solutions for clients across the globe. Our primary focus is making special opportunity investments in Yacht, Aviation, and Luxury Assets.
We are a direct lender with funds coming primarily from private investors comprised of Family Offices and HNWI. As a result, we are not burdened with the regulations that Banks or larger financial institutions face and pride ourselves on being flexible and structuring deals to comply with our client’s needs as much as possible.
Our typical structures are asset-based or limited recourse loans tailored to meet the specific needs of our clients. Utilizing the financed asset as collateral, we can typically close in one to four weeks, depending on the asset. We can also consider convertible debt or Hybrid – Debt /Equity investments. Contact us today to learn more.
