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FAQs

Frequently Asked Questions
What is the interest rate?
How long will the application take to process?
How much down payment do I need?
What is the least and most you will finance?
Can I pay off the loan anytime without a prepayment penalty?
Is this a "simple interest loan"?
Is there an application fee or any closing costs?
How do I get my money?
What kind of boat can be financed?
Why should you finance your boat instead of paying cash?
A little about U.S. Coast Guard Documentation.
How are credit scores determined?
Common mistakes made purchasing boat insurance.
How do I apply?


What is the Interest rate?
Rates vary depending on loan amount, down payment, geographic area and boat age and value. Our rates are always changing but we strive to offer the lowest rates and the best terms in the business. For a competitive and personalized rate quote, please call us at 678-523-7350 or complete our online rate quote form.

How long will the application take to process?
With a completed application and personal financial statement along with appropriate income verification, Recreation Lending can respond with a credit decision usually in a day or two after receiving your loan package.

How much down payment do I need?
Generally speaking, a 10% down payment is required on loans under $100,000, 15-20% over $100,000. We do have programs offering even lower down payments for exceptionally strong applicants.

What is the least and most amount you will finance?
Our minimum loan amount is $25,000. There is no maximum.

Can I pay off the loan at anytime without a prepayment penalty?
That depends on the bank. Most of our loans do not carry a prepayment penalty. Several lenders do, but the prepayment penalty is usually under $250.

Is this a "simple interest" loan?
Yes, every loan we write is simple interest.

Is there an application fee or any closing costs?
Recreation Lending does not charge any application fees. The closing costs vary according to value added services provided. Minimum charges start at $178 and increases subject to services provided. Vessels requiring US Coast Guard Documentations generally incur charges starting at $500 plus additional cost on any added services such as UPS & Wire transfer. Recreation Lending will handle all the post closing titling, registration and Coast Guard Documentation needed in order to satisfy the loan contingencies.

How do I get my money?
Once your loan has been approved and you have signed all the necessary loan documents, Recreation Lending will issue a check payable to the seller. We can also arrange for wire transfer of funds.

What kind of boat can be financed?
Recreation Lending specializes in the financing of powerboats, houseboats, yachts and sailboats. Recreation Lending has nationwide lending authority for boats as old as 30 years old. Call or email for exceptions.

Why should I finance my boat instead of paying cash?
Your boat may qualify for the same IRS tax advantages that are available for your home. And by financing your purchase, instead of liquidating assets or paying cash, you increase your financial flexibility. This enables you to take advantage of attractive new investment opportunities as they come along... and the earnings from these investments can easily exceed the cost of your marine financing. In the end your boat may cost less by not paying cash.

Tax deductibility of yacht loan interest.

Qualification of yacht as a residence:

Under IRC section 163(h)(2) a taxpayer may deduct any qualified interest on a qualified residence, which is defined as a principal residence and one other residence owned by the taxpayer for purpose of deductibility for the tax year. IRC section 163(h)(3) defines qualified residence interest as any interest, which is paid or accrued during the tax year on acquisition or home equity indebtness with respect to any qualified residence of the taxpayer.

In accordance with IRC section 163(h)(4), a boat will be considered a qualified residence if it is one of the two residence chosen by the taxpayer for purposes of deductibility in the tax year as long as it provides basic living accommodations such as sleeping space (berth), a toilet (head), and cooking facilities (galley). If a boat is chartered out the taxpayer will have to use the boat for personal use for either more than 14 days or 10% of the number of days during the year that the boat was rented, in accordance with section 280A(d)(1).

Forms:

Tax form 1098 is not necessary for deductible interest expense. In accordance with IRS instruction for schedule A, form 1040, if the taxpayer does not receive form 1098, deductible mortgage interest should be reported in line 11 instead of line 10 on schedule A.

Borrowing against your home:

Home mortgage interest deduction is limited to interest paid on mortgage debt used to purchase or improve a residence, or to refinance the remaining balance on a purchase improvement. If the money is not used for the home then the interest expense does not qualify for the deduction.

Home equity loan:

Home mortgage interest deduction is limited to interest paid on home equity loans up to $100,000. By using a home equity loan, you may limit the amount of interest that is deductible, if your boat loan exceeds $100,000.

Stock margin loan:

Second home mortgage interest deduction is limited to interest paid on second homes that are secured by that second home. You would need to have a written collateral agreement (security agreement) indicating the boat as collateral, which is something your broker probably would not be prepared to provide.

Example saving for financing your boat:

For instance a 20-year loan at a fixed rate of 8.5% for $100,000 would require a monthly interest and principal payment of $867.82.

The interest cost of this loan over an anticipated 60 months would be $40,196.30.

If you are in the 30% tax bracket, this interest expense deduction would save you $12,058.91, effectively reducing the cost of the loan to $28,137..39.

This same $100,000, if invested earning 9%, would grow to $137,703.68 (after tax) in the same time period. Tax free municipal bonds yielding 6% could earn $34,885.02 over 60 months. More aggressive investments could obviously make earnings even more attractive.

The preceding information was compiled with the help of the National Marine Bankers Association and Deloitte & Touche, LLP. Rates are subject to change without notice. Actual rate may vary based on credit history, collateral, state of residence, down payment, loan amount and other criteria.


A little about U.S. Coast Guard Documentation.

The term "secured lending," suggests its meaning. It provides that the lender has certain rights and remedies that reduce the implied risk in making a loan. In this type of loan, the borrower grants the lender a right of possession to some property of value in the event that the borrower meets the terms and conditions of the promissory note. In marine lending, it is the actual boat being purchased which is secured as "collateral". One of the many factors that affect interest rate on a secured loan is the lenders ability to "secure" interest in the collateral. The stronger the method of recording, the lower the lender's rate is likely to be.

As consumer lending began its vast expansion in the American economy in the sixties and seventies, lenders sought ways to make loans on high-ticket items such as private airplanes and pleasure boats. The existing models for recording a security interest in the property being purchased were home mortgages, and automobile loans. Real property deed recordation systems based on "ancient" law were effective for recording security interest in home purchasing, and all 50 states had automobile titling systems allowing reciprocal enforcement of lender interest in autos as collateral.

Today, there are still only 33 states that have boat titles, and in the seventies, when consumer marine lending really began, fewer than half the states had boat title systems. Lenders turned to the U.S. Shipping Code and the Preferred Ship Mortgage Act of 1920 as a vehicle by which security interest in the boat could be perfected. Having roots in 300-year-old Admiralty Law, and shipping instruments known as "bottomry bonds", the Federal laws provide for a system administrated by the U.S. department of Transportation, United States Coast Guard in which boats are registered and mortgaged. This is called U.S. Coast Guard boat Documentation.

Marine lenders are particularly fond of this method of recordation, since the Coast Guard "Abstract of Title" is an inviolable public recording of any and all legal engagements of the boat. In addition, under the umbrella of Maritime Administration treaties throughout the world, a Preferred Ship Mortgage is enforceable not only in all 50 states, but in most foreign waters. And the Owner's Certificate of Documentation identifies the boat as a flag boat of the U.S. Fleet entitled to all the rights and courtesies of any U.S. boat on the high seas. It also serves as a boat's legal identification in all foreign ports. Not only does this provide a level of security above all others for the lender, but also it actually enhances the value of the boat somewhat due to the clarity of title. For these reasons, most marine lenders say, "If it can be documented, it should be!"


How are credit scores determined?

In June 2000, Fair, Isaac surrendered to increasing pressure from Congress and consumer groups and released a list of the criteria it uses to determine credit scores. In addition, the company plans to develop a web feature so you can check your own score.

The five main criteria are:

  • Your payment history on credit cards, retail accounts at stores, installment loans, and mortgages. 35% of total score.

  • Amounts owed. What is important is how many accounts have balances and how much of the total credit line is being used on credit cards and other "revolving credit" accounts. 30% of total score.

  • Length of credit history. That's why parents should help children establish credit histories before they go out on their own. 15% of total score.

  • New credit. Applying for too much new credit is one of the easiest ways for people to inadvertently harm their credit score. 10% of total score.

  • Types of credit. This takes into account your mix of installment loans, mortgages, retail accounts, credit cards and finance company accounts. 10% of total score.

The scores that companies like Fair, Isaac compile are sent to the credit reporting agencies as composite numbers. In addition to your salary and other factors mentioned above, here are some of the things that scoring agencies consider:

  • Your education level. It sounds arbitrary, but it's true. A college-educated person is given more "points" than a high school graduate, for example.

  • The number of years you've lived in a single location. If you've moved around a lot, you lose precious points. If you've moved because of a better-paying job, you can recoup some of those points if your salary has increased, for example.

  • The number of years you've worked for a single employer. Scoring agencies like people who are stable. That's why they assign more points to people who've lived in a particular place for several years or who've worked for a single employer for many years.

  • Are you a homeowner? If you are, you get additional points. Renters are considered more transient and less reliable to repay their loans.

If all of this sounds arbitrary or unfair, remember that scoring systems have allowed department stores and other lending agencies to offer those "on-the-spot" credit approvals. You know the routine. You fill out some basic information on a card and five minutes later (if the computer is working properly), you're either approved or disapproved for a loan.

Fair, Isaac is only part of the process. Once the company processes a score, it is then transmitted to the lender, which makes the ultimate decision on whether a credit application is approved or denied. Lenders insist that the scoring system does not unfairly hurt minorities, but simply reflects overall lending histories.


Common mistakes made purchasing boat insurance.

One of the biggest mistakes made when buying boat insurance, is assuming that all policies are the same. Well your assumption could cost you dearly. There isn't a standard Boat insurance policy and you might discover some gaps should you suffer a loss.

Check your policy for these riders

Hull Coverage: Agreed Value vs. Actual Cash Value (AV vs. ACV). Fair market is the "Agreed Value" that the Boat insurance companies and you agree on. If you suffer hull loss, your payout is the agreed value without deduction for depreciation. Actual Cash Value will factor in depreciation at the time of loss before the payout so you will receive much less.

Protection & Indemnity (P&I) vs. Watercraft Liability: Protection and indemnity is the broadest coverage. It covers your hired crew, wreckage removal, and negligence if your boat is unseaworthy, bodily injury and property damage. Coverage is from $100,000 to $1 million and even higher. Watercraft only covers bodily injury and property damage.

All Risk vs. Specified Perils: Unless it is specifically excluded on the policy, all risk coverage provides coverage for any loss. Only specific losses listed on the policy is covered with Specified Perils.

Navigation Limits: if you have a loss outside of the stated navigational limits on your policy your insurance coverage could be invalid. Figure out where you want to go and include it in your navigation limits coverage.

Deductible: Higher deductibles mean lower annual Boat insurance premiums. Consider Lower deductibles only for electronics, personal property, and tenders. Lay-Up Periods: If you're a part time sailor, include longer lay-ups. This will lower your Boat insurance premium.

Other Coverage in a Boat insurance policy may include medical payments, personal effects, uninsured boater, and towing. Credits can also be given for completion of a boating safety course and of course, having safety equipment onboard your vessel.

By: Ron Sward


How do I apply?
We're glad you asked! Several options are available to you on the APPLY NOW page of this website. You can apply on this site, download the loan application and email back to us, or print the loan application and email back to us. On most loans we will also need income verification. For loans under $50,000 and boats under 10 years old, we will probably just need a recent paystub. If the loan is over $50,000 or boat is over 10 years old, then we will need your last 2 years 1040's (and schedules A through E). If you own a business, we will also need last 3 years financials (including business tax returns, if applicable). A credit decision can be made in as little as one business day.
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