Boat Loan Add-Ons: GAP, Service Contracts and Credit Insurance, and How to Cancel Them

BoatUS recommends arranging financing and insurance before making an offer. A pre-approval from your own bank, credit union or a marine lender lets you compare the dealer's offer, and an insurance quote tells you what the boat will be insured for. Both make it easier to say no at the finance desk.

Before signing, ask for the full itemized list: boat, motor, trailer, options, fees, taxes, and each add-on with its own price. Ask directly, "Does this loan include charges for any optional products?" Take the papers home overnight if you can.

The CFPB says you generally can't be required to buy an extended warranty, GAP or credit insurance to get a loan. If you're told one is required:

• Ask to see the contract language.
• If it isn't written in the contract, decline it.
• If the lender really requires it, shop elsewhere. The CFPB also notes that a product the lender requires has to be counted in the finance charge and shown in the APR, which makes the loan's true cost easier to compare.

GAP matters only when you could owe more than the boat is worth. That's most likely when:

• You put little or nothing down (Discover Boating describes 10 to 20% down as typical, with some no-money-down deals).
• The loan term is long.
• You rolled taxes, fees or add-ons into the loan.
• Your insurance pays actual cash value (depreciated value), not an agreed value. BoatUS explains that agreed-value policies cost more but pay more, while actual-cash-value policies pay what the boat was worth at the time of the loss.

If you're putting a solid amount down and your policy is agreed value, GAP may add little. If you do want it, the CFPB notes that some insurers and lenders sell GAP too, so compare prices and coverage before buying it from the dealer. Ask whether it's available for boats, whether it covers your insurance deductible, and what it excludes; then read the exclusions in the contract itself.

Our extended service plans guide covers this in depth. From BoatUS:

• Most are really insurance contracts from third parties, not the manufacturer, and dealers may not step in if there's a problem.
• They often won't pay for consequential damage, engine removal or haul-out, and they usually have deductibles.
• On a new boat, a third-party contract may not start until the factory warranty ends, so a three-year contract on a one-year warranty may give you only two years.
• Dealers can mark them up a lot, and the price is negotiable.
• Many are transferable for a fee, and you may be able to cancel, often with a prorated refund minus a fee.

A factory-backed plan from the engine maker usually works more smoothly at the dealer. Either way, you don't have to buy it on the day you buy the boat; ask how long you have to sign up.

The CFPB describes four kinds: credit life (pays the loan if you die), credit disability (pays if illness or injury keeps you from working), involuntary unemployment (pays if you're laid off) and credit property (covers the boat if it's stolen or destroyed, which your boat policy may already do). It notes these products often have eligibility limits, the price can be negotiated, and adding them to the loan means you pay interest on them too. Compare with term life or disability coverage you may already have.

You may also be offered debt cancellation or debt suspension agreements, which look a lot like credit insurance. The CFPB explains the difference:

• Debt cancellation promises to wipe out the loan if you die, or cancel monthly payments if you're disabled, laid off or face another listed hardship.
• Debt suspension only postpones payments during a hardship; you still have to make them up later.
• Unlike credit insurance, these products aren't regulated by state insurance officials, they often have eligibility limits, and financing them adds interest.

The CFPB adds that ordinary life insurance may be cheaper and covers more than one loan. Ask the finance manager, "Is this insurance, or a debt cancellation agreement?" and get the answer on the contract.

For each one, multiply its price by the effect of financing it: put it into a loan calculator with your rate and term, and look at the total interest. Ask yourself: "Would I write a check for this today?" If not, decline.

• Ask for a lower price on any add-on you want; BoatUS notes service contract prices are negotiable.
• For anything you don't want, make sure it's removed from the contract and the payment is recalculated before you sign.
• Initial only the lines you agreed to.

File the GAP agreement, service contract and any credit insurance certificate with your loan papers. The CFPB notes that if you lose your paperwork you can ask the lender, provider or dealer, but it's far easier to keep your own copy. Write down the cancellation instructions and who to contact.

The CFPB says you can cancel optional add-ons during the loan, which can lower your costs. Typical steps:

• Read the cancellation section of the add-on contract.
• Send a written cancellation request to the provider or administrator (and the dealer, if it sold it), keeping proof of delivery.
• Ask how the refund will be calculated and whether it goes to you or toward the loan balance.
• Check your next loan statement to confirm.

BoatUS warns that some service contract companies calculate refunds with the "rule of 78s," a formula that returns less money than a simple prorated refund. Check the contract.

Many add-ons are paid up front for the whole loan. If the loan ends early, the CFPB says you may be entitled to a refund. Contact each provider when you sell the boat, refinance or make the final payment. A transferable service contract may instead go to the buyer, sometimes with a fee.

If you were told an add-on was required, signed for something you declined, or can't get a refund owed to you, file a complaint with the CFPB, your state attorney general, your state insurance commissioner (for products sold as insurance, such as credit insurance or GAP written as an insurance policy) or the FTC. Debt cancellation and suspension agreements aren't regulated by state insurance officials, so send those complaints to the CFPB or your attorney general.