For some of us, we haven’t saved enough to buy our dream boat with cash. Thus, when we are ready to go boat shopping, we start looking for a boat loan. Of course, any lender will want security on its loan. There are two methods available to lenders to secure boat loans. The size of the boat determines which method is appropriate.
As a general rule, lenders require that boats under 26 feet be titled and a notation of the security interest recorded on the title.
For vessels exceeding 26 feet, a title does not adequately protect the lender. The only way a lender can be fully protected in these cases is to require that the boat be federally documented and a Preferred Ship’s Mortgage be recorded against the vessel. A Preferred Ship’s Mortgage is statutorily created at 46 U.S.C. 313. The Preferred Ships Mortgage is only available on documented vessels and only to FDIC approved banks or other lending institutions which have been federally approved.