If you take out a loan and dont make payments as agreed, expect the bank to pursue the item you used as collateral for the loan. In the case of a boat loan, this means that the bank will send an individual to repossess your boat. The bank will then report the repossession to the credit bureaus. Thus, not only will you lose your watercraft, your damaged credit may make it difficult to qualify for another boat loan when your financial situation improves.
Boat Seizure
Depending on the way your boat loan is structured, the repossession may appear on your credit report as either a repossession similar to a car repossession or a foreclosure. This is because boat owners with houseboats have the option to take out a mortgage on their boats rather than a mere loan. Regardless of whether your credit report reflects a repossession or a foreclosure, losing collateral to a lender due to your inability to make payments reflects poorly on your creditworthiness and does considerable damage to your credit score.
Credit Damage
The degree of credit damage youll suffer after a boat repossession depends on a variety of factors such as how the lender reports the repossession and whether the other accounts on your credit report are in good standing. In general, the better your credit score, the greater the damage it will suffer after a repossession or foreclosure.
Considerations
When banks seize cars and homes due to unpaid loans, they attempt to sell the collateral and recover the debt. The same is true of boats. If the bank recovers the remainder of your loan through the boat sale, you likely wont hear from them again. If the sale does not satisfy your outstanding loan balance, you are still responsible for paying off your debt. If you do not, the bank can turn your debt over to a collection agency damaging your credit rating even further.
Both a collection agency and the original lending institution have the right to sue you for the unpaid balance of your boat loan. State laws vary regarding a creditors rights after a lawsuit, but in most states creditors can garnish your wages and seize personal property such as your bank accounts, to recover the unpaid debt. Your credit report will also reflect a legal judgment that has an added negative effect on your credit score.
Time Frame
Your boats seizure will not haunt your credit file forever. The Fair Credit Reporting Act notes that credit bureaus must delete information pertaining to repossessions and foreclosures after seven years and 180 days. An exception to this rule may apply if your lender sued you and obtained a judgment for the unpaid balance of your boat loan. If your state gives lenders more than seven years to collect a judgment, the judgment can remain a derogatory part of your credit file for the full enforcement period in your state.
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