Boat loans and intent of use

[Ford Prefect]

I have a center console that I purchased a while back as a recreational vessel and had it financed. I recently decided to do a few sunset charters with the boat. My current insurance company states my policy is voided if I do any type of charter trips so I will be upgrading my insurance to a commercial policy.

My concern is once the policy is updated, the loss payee (the bank) will be notified of the insurance change. Since I originally bought this as a recreational vessel, would the bank call the loan due now that the use of the boat has changed? Would I need to refinance into a commercial loan?

Any insight would be much appreciated.

[Bill O]

Originally Posted by Ford Prefect

I have a center console that I purchased a while back as a recreational vessel and had it financed. I recently decided to do a few sunset charters with the boat. My current insurance company states my policy is voided if I do any type of charter trips so I will be upgrading my insurance to a commercial policy.

My concern is once the policy is updated, the loss payee (the bank) will be notified of the insurance change. Since I originally bought this as a recreational vessel, would the bank call the loan due now that the use of the boat has changed? Would I need to refinance into a commercial loan?

Any insight would be much appreciated.

My initial thought before you worry about the loan dept would be, do you have a captn's license, related safety gear to take out passengers and any necessary boat inspections?

[Ford Prefect]

All that is squared away.

[Bill O]

Well you are living up to your user name, perfect!

Could always call them and ask what if..... Maybe it will not matter as long as you pay/have paid on time.
Will insurance cost more, even if it's just occasional charters?

[S/V Illusion]

Not informing the bank of the use change abrogates your loan application and the terms by which it was granted.

[Lake-Effect]

Originally Posted by Ford Prefect

I have a center console that I purchased a while back as a recreational vessel and had it financed. I recently decided to do a few sunset charters with the boat. My current insurance company states my policy is voided if I do any type of charter trips so I will be upgrading my insurance to a commercial policy.

My concern is once the policy is updated, the loss payee (the bank) will be notified of the insurance change. Since I originally bought this as a recreational vessel, would the bank call the loan due now that the use of the boat has changed? Would I need to refinance into a commercial loan?

Well first, permitted use should be covered in the fine print of your current loan.

In any event the safest thing to do is to ask the bank whether charter use could be accommodated in the current loan if properly insured. Depending on the loan balance and your business plan, they might be ok with it, or would replace it with a commercial loan.

Or form an LLC for chartering, arrange commercial financing, and sell your boat to the LLC.

[Ford Prefect]

Thanks all.

Looking back at my loan docs, the only thing I had to attest was that the vessel was not going to be a dwelling or residence. There was no mention of using it for commercial purposes. I suppose a call to the servicing dept can’t hurt.

Bill, I’ve found that the commercial premium runs about 3 times what the recreational policy costs.

[marshmat]

Call up your banker and say "I'm thinking about running charters on this boat; from my reading of the loan terms, I think that should be fine from your end. But would you mind double-checking, just to be sure I don't run afoul of any of your bank's legal language? I'm getting commercial insurance sorted out through Dave over at ABCD Insurance Broker." As long as they know you're properly insured, they'll probably be OK with it, and they'll be glad you checked rather than just forging ahead

Originally Posted by Ford Prefect

Bill, I’ve found that the commercial premium runs about 3 times what the recreational policy costs.

That's because customers can be litigious little bastards, while dock neighbours usually are not. One lawsuit, even if meritless, can eat up five years worth of premiums just for the "figuring out what the hell this is about" stage.

[Captain Bligh]

I know its a boat and boats can be different than land vehicles. But I have never had a problem with a personal auto loan and registering and insuring the auto as an commercial vehicle. The banks only concern is that the vehicle is properly insured if there were a loss.

Again, just check with the loan company and be sure you get a correct answer.

[Bill O]

Originally Posted by Lake-Effect

Or form an LLC for chartering, arrange commercial financing, and sell your boat to the LLC.

Creating a LLC would be a good idea for many reasons, especially liability.

[Jas0381]

I did not read all of the above posts but everything you’re worried about is adequately covered in the fine print of your contract which will tell you in different languages that you cannot do what you’re talking about without making the proper notifications. Contract attorneys got paid lots of money to protect the lending industry. Good luck.

[valhalla360]

When you check with the bank, make sure to do it in writing. If someone on the phone tells you it's fine and when you submit the new insurance, they take issue...good luck claiming someone told you on the phone.

They may or may not take issue with commercial use. How long was "a while ago"? A couple years ago and you can claim your intended use has changed. A couple months ago, they may question if you took out the loan under fraudulent intent even if it's not specifically prohibited in the contract.

[Jim Beck]

I am a retired bank CEO. You are getting lots of advice on this from people who are speaking authoritatively, but don’t really have the facts. I suggest you read the loan documents for clarification. It would certainly be a good idea to call your banker also..I recommend you just be upfront and honest. My guess is the banker won’t know either, without reading the documents him or herself.

[tkeithlu]

Hey, Bill O, that was Prefect, not Perfect, as in "in some schools, a senior student authorized to enforce discipline." From childhood experience, I promise you that prefects are not perfect. Nasty little self-important buggers, usually.

[brendanwalls]

On the other hand, if you've read the Hitchhiker's Guide to the Galaxy, you'll see he still lives up to his name.