The Basics of Assuming a Boat Loan

Assuming a boat loan simply means taking over the loan from the current owner. When you purchase a boat, if the seller is advertising an "assumable loan," you should ask for further details. Often, the rates on the loan will be lower than a loan you could get today, and you can find other unique benefits in the process.

Why Assume a Boat Loan

You should assume a loan if the rates and terms are more favorable than a comparable loan you could get to purchase the boat outright. This is beneficial if interest rates have gone up since the original owner sourced the loan. For example, interest rates may be higher on the current market than they were when the boat was originally purchased. That means even a borrower with very good credit will not likely be able to find a competitive loan quote.

It is also possible the credit market has tightened. In this case, a loan for a boat would be hard to find. Luxury loans, like boat loans, are much less available in a tight credit market than in a highly liquid market. 

How to Assume a Loan

Not all loans offer an assumable package. If they do, however, the seller will certainly advertise this fact because it gives them an advantage in trying to make the sale. If you would like to consider assuming the seller's loan, you will have to contact their lender. The lender will not allow anybody to assume a loan. Instead, the lender will want to evaluate whether you have comparable credit and financial resources to the previous borrower. .

The lender will present you with a "loan assumption package." This includes all information required of you before you qualify for assuming the loan. After the lender looks into your information, they will let you know if you are a candidate for assuming the loan. If so, the current seller will typically be very happy to work with you, making the negotiation process of buying the boat much easier.

Risks of an Assumption

There are not many risks of assuming a loan if the loan has good terms and is in good standing. You can request complete information on the loan from the lender when you ask for the loan assumption package. The information to look for includes a full report on the payments made and when they were made (i.e., on time or late). You should also be aware of any potential for the loan to adjust in the future.

Assuming a variable rate loan is not a good idea. This loan could skyrocket in price the moment you assume it. The other major risk of assuming a boat loan is the initial expense associated with doing so. You will have to pay the seller in full for the equity they own in the boat. For example, if the seller owns 50% of the boat, then you will need to make a 50% down payment essentially on the loan. This can be a very high expense.

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