Assuming a boat loan refers to taking over a loan from the current boat owner. Boat loans should be assumed if the rates and terms are more favorable than those of a loan that is obtained to purchase the boat outright. An instance of such is when the interest rates have increased since the original owner obtained the loan. In this case, even a borrower with good credit will not find a more competitive loan quote. Another example is when the credit market has tightened, and it is more difficult to obtain a luxury loan.
Assuming a loan
Most sellers advertise the fact that their loan offers an assumable package: it is in their advantage when trying to make the sale. Make sure that the loan can be assumed by requesting copies of the boat loan papers from the seller and contacting the lending institution. The lender will first examine if you have comparable financial resources and credit to the previous borrower. Before qualifying for loan assumption, the lender will offer a loan assumption package that includes all required information. Compile all requested documents and present them to the lender. Upon looking at your personal details, the lending institution assesses if you are capable of repaying the loan. Under favorable circumstances, the lender will approve the assumption, and the seller will be happy to co-operate in the process of purchasing the boat.
Keep in mind that likely applicants for assumption are individual with a good credit score. If your credit score is blemished, you might have to postpone the purchase and work on improving your credit score.
Risks involved in assumption
New borrowers have to bear in mind that there are some disadvantages of assuming a boat loan. Boat loans with goods terms should not present a problem. Others may come with extremely high interest rates and penalties. It is important, therefore, that the borrower requests full information on the loan from the lender. Details to request are a full report on the payments, together with the dates on which they were made. In this way, you will find out if there are any late payments. The person assuming the boat loan should inquire about the likelihood that the loon adjusts in the future.
Avoid variable interest rate loans
Bear in mind that assuming a variable interest rate loan is not recommended. The price of the loan can increase drastically upon assumption. In addition, the buyer is required to pay the full amount of the equity that the seller owns in the boat. For instance, if the seller owns 40 percent of the boat, the buyer has to make a 60 percent down payment on the boat loan. This expense is often quite high.