Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, February 19, 1995 TAG: 9502180002
SECTION: BOAT SHOW PAGE: BS-6 EDITION: METRO
SOURCE: STAFF REPORT
DATELINE: LENGTH: Medium
"For the consumer, this means more choices, and the necessity to do a little research into which loan is best," Schneider said.
John Redmond, vice president of NationsBank in Greensboro, N.C., sees the time as being right for borrowing for a boat.
"A strong used-boat market is enabling consumers to command a higher trade-in value. This, along with deals being made on new-boat sales, will make 1995 an attractive time to purchase and finance boats."
The influx of lenders into the boating marketplace has had the effect of relaxing some standards, allowing lower down payments, easier qualifying and looser controls, Schneider said. But he cautions that there may be trade-offs for the consumer later on if terms are too generous."
"Inadequate down payments and extended terms can combine to put owners in negative equity situations when more is owed that the boat is worth at trade-in time," he said.
If that practice becomes widespread, as it did in the late 1980s, boat buyers could face a credit crunch, he said.
Rising interest rates are of concern to potential borrowers; however, consumers should not be discouraged from making their purchases, Schneider said. In the view of lenders, money is cheaper now than it will be later, and current market conditions point to a future rise in boat prices that will exceed the inflation rate.
What's more, most people tend to overestimate the effect of small changes in rates on a boat payment, he said. For example, on a typical 15-year loan of $30,000, a 9 percent load costs $304.28 per month while a 9.5 percent load costs less than $10 more.
Some boat lenders are helping the consumer get around those rising interest rates with the introduction of rate locks.
"Loan approvals typically have rate commitments of just 30 days," said Redmond. "Now, the consumer can pay a rate lock fee to hold a lower rate over a longer period of time."
Borrowers who want the simplest, worry-free boat loan which keeps payments steady can opt for the old fixed-rate, moderate term variety.
"More sophisticated borrowers may be well served by the adjustable rate boat loan, similar to real estate ARMs," said Dave Drescher of John Deere Credit. "The initial rate is lower, and if rates fall the borrower benefits without having to refinance, which costs time and money."
For high tax bracket types who want to buy but leave their investments alone, Drescher recommends looking into boats that qualify as a second home, which makes loan interest deductible at tax time.
by CNB