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The Smart Buyer: Boat financing gets a little easier

Primed by aggressive, even subprime lending to auto buyers, new-car sales jumped 11 percent in 2010 while new-boat sales fell another 10 percent — a decline that no longer can be blamed on constipation in the lending market.

Boat loans are available and at good rates, according to lending experts.

“The credit’s available,” says marine retail lending consultant Jim Coburn, managing partner at Coburn & Associates, of Macomb Township, Mich., and past president of the National Marine Bankers Association. “If someone needs to get a loan, they can get one.” And it’s available at a “doggone good” interest rate — “from the high 4s into the 6s,” he says. So why aren’t boats selling like hotcakes?

The consumer is still a bit spooked, Coburn says. The Conference Board, which tracks consumer confidence, said May 18 that the index fell 5.2 points from a month earlier, to 60.8. The benchmark for high consumer confidence in the economy is 1985, when the index reached 100. Consumers in May were worried about the U.S. job outlook, the moribund housing market and the overall business climate.

Weak sales, together with low interest rates and a robust pipeline of credit, are good for boat buyers. Low sales volume stiffens the competition for qualified buyers. “The dealers that I talk to are willing to work with a customer and get them into a boat,” Coburn says.
Dealers are pleased that credit is flowing again. “What we’ve seen the last three or four months is a loosening of credit for good-credit people,” says David Foulkrod, chairman of the Marine Retailers Association of America, who owned a dealership for 28 years and now is working with Hoover Marine & RV, a five-store Texas chain.
Foulkrod says lenders now are seeking to make loans to good credit risks; previously they were looking for the tiniest blemish so they could reject applicants who otherwise were highly qualified. Some prime lenders will accept a credit score as low as 680, but many still want scores of 700 to 725, Coburn says.
Lenders generally are pegging their interest rates to the size of the loan (the bigger the loan, the lower the rate) and to credit scores (the lower the credit score, the higher the rate), according to Coburn. Fifteen to 20 percent down payments are de rigueur, down from 25 to 30 percent in 2007-2008.
Foulkrod sees a lot of pent-up consumer demand for boats and expects credit to ease further as the economy improves and more buyers act on their desire to own a new boat. “As an industry, we tend to follow behind the auto industry just a tad in that respect,” he says, referring to lenders returning to the market with easier credit terms.
With the real estate market still in disarray, lenders flush with money and no place to lend it are aggressively competing for auto loans. During last year’s fourth quarter, as much as 38 percent of their cars loans were subprime, up from 18 percent a year earlier, according to a Feb. 27 article in The New York Times.
Why isn’t that “easy” subprime money flowing back into the marine market yet? “We’re a different animal than the auto industry,” Coburn says.
He says autos are a necessity; people have to buy cars, in good times and bad. The sales volume in cars is much greater than in boats. The auto industry is more homogenous than the boating industry, with fewer manufacturers. The price spread in cars generally is smaller than in boats. The resale value of cars is more easily set, so lenders can project and have a better idea what a car will sell for if they have to repossess it. And the terms for car financing are shorter.
Car values actually held up pretty well during the recession. Boat values declined by a third or more. It also doesn’t help that boat loan delinquencies in 2009 were 2.26 percent of loans, the highest it has ever been and a higher delinquency rate than most other consumer loans that year.
With real estate on the skids, the “first and the easiest thing for lenders to get into is auto lending,” Coburn says. Yet he believes boat loan criteria have loosened a little. “I’m not going to say a lot,” he says.
Hewing to a low-end credit score of 680 “is still pretty conservative, but it should be so we don’t run into these kinds of debacles” — such as the 2008 collapse of the credit market — “in the future,” Coburn says. He sees retail lenders soliciting boat dealers again. Forty-four percent of lenders project that lending criteria will return to precrisis levels by 2012.
Coburn says there even are companies issuing subprime — or what he calls “non-prime” — marine loans again: Marine One Acceptance Corp., of Dallas; Merrick Bank, of South Jordan, Utah; and Medallion Bank, of Salt Lake City.
Most lenders know auto financing. They know how to make money at it, even when a customer defaults on a loan. These lenders “tend to be a lot more aggressive in catering to just about any credit profile out there [in the auto market],” says Scott Anderson, vice president of marketing and manager of the recreational lending program for Merrick Bank.
A lender might find a clunker for a desperate car buyer and charge him 30 to 35 percent interest, and the buyer will snap it up because he needs the car to go to work every day, Anderson says.
Merrick, which only works through dealerships, usually charges a rate of about 11 percent for its non-prime loans. Its clients typically are buyers who have had some credit lapses — their credit score could be as low as 580 — but are demonstrably pulling out of a tailspin.
“The last thing we want to do is to make a loan to somebody when we don’t think they can pay it back,” Anderson says. “That doesn’t help anyone.”
Merrick’s niche is boats that cost $60,000 or less, usually trailerable boats — runabouts, ski boats and fishing boats — under 30 or so feet. Merrick has been pretty busy during the recession. “So many lenders left the industry, and the ones that were left tightened their criteria,” Anderson says.
As one of the few banks offering non-prime loans, that left a big opening for Merrick. “2008 and 2009 were pretty good years for us,” he says.
One hopeful sign that financing soon may become even more readily available to boat buyers: According to American Banker, the financial services daily, competition for auto loans has been so keen that their pricing is becoming less attractive to lenders, which could send them looking elsewhere to lend money.

Credit is easing for good-credit people. Are you ready for a new boat?

This article originally appeared in the August 2011 issue.