Boats can be a great investment even though, similar to cars and motorcycles, the moment you buy one they start to depreciate. However, the pleasure they can bring to the owner as well as their family and friends can be worth the expensive price tag. Perhaps this is why there was a boat buying boost during the pandemic. Sales of boats reached $47 billion in 2020, a 13-year high, according to the National Marine Manufacturers Association. If you are seriously thinking about purchasing a boat, you should consider using a boat loan to help you.
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What is a boat loan?
Boat financing, as an example, is an expensive process. While a personal loan could be used to help with this up-front cost, boat loans can typically offer more financial relief with favorable conditions.
A boat loan is a common type of installment loan, meaning you repay the principal amount, including all interest, over a set period. It works extremely similarly to the car buying process, with the difference being that the borrower wants to purchase a boat. Unless you have tens of thousands of dollars in cash laying around, a boat loan will help enable you to set sail on the open seas.
How do they work?
As mentioned, a boat loan is set up quite similar to a car loan with the following conditions:
Down payment:
Your down payment is the amount of your own money you are going to put down today.
Loan principal:
This principal will be the cost of the boat remaining after subtracting the down payment.
Interest rate:
This rate, either fixed or variable, is the agreed upon interest you will pay on top of the principal.
Monthly payment amount:
The agreed upon monthly repayment amount, including interest.
Tenure of the loan:
The total number of years you will spend repaying the loan – typically between one to 15years.
After submitting an application for a boat loan, you will be able to view all terms of the potential loan if you are approved. In general, it is better to seek a fixed interest rate so that you know exactly what you will be paying overtime. Once you make your down payment and agree to the loan, you can hit the water with your boat and start making repayments.
How do I use a boat loan?
Applying for a boat loan can be quick, and funding can happen within the same day or next business day. Typically, lenders will deposit the funds into your bank account. Then, you can withdraw the money to purchase the boat, either in cash or by writing a check.
Then, you’ll start making monthly payments on the loan to repay the balance. Remember that like other installment loans, you’ll start being charged interest on the balance, so it’s important to make the payments on time and repay the loan within the term.
Where can I get a boat loan?
You can get a boat loan from a variety of lenders, especially depending on whether you’re going with a general personal loan or a loan specifically for boat financing:
Banks:
A personal loan from a bank may be a great option if you’re already an existing customer of the bank, or if you have an excellent credit score and credit history. Banks have stricter requirements, so those with higher credit scores are more likely to get lower APR.
Credit unions:
Best for those who are already members, credit unions also offer personal loans that can be used for a boat purchase. Requirements are often a little more flexible, and members with lower credit scores may still be able to qualify for a loan.
Online lenders:
With the most flexible requirements and fastest application, approval and funding processes, online lenders offering personal loans or boat loans can be a great option.
Boat dealers:
Work with the boat dealership to arrange financing, similar to how you would if you were purchasing a car. They can help you through the loan process, and most dealers have a finance manager on site who can help you find the best interest rate.
Marine finance companies:
Marine lending specialists are financial service companies that act as brokers to help find you a boat loan. They will secure funding through outside sources, such as banks, with similar rates and repayment terms as personal loans.
What are the different types of boat loans?
While all boat loans will be installment-based and require monthly repayments, there are two different types: secured and unsecured loans. Depending on your credit, financial history, loan size, general loan details, and the lenders themselves, you may be offered either.
Secured Loan
With a secured boat loan, you can get access to longer repayment terms and higher borrowing limits – but don’t forget that the boat will then serve as collateral. The flip side is lower interest rates, plus down payments may be required – so weigh up your options carefully.
Unsecured Loan
On the other side of things, an unsecured boat loan has no collateral at all, and the boat cannot be repossessed in the event of a loan default. As a result, interest rates on unsecured boat loans can be far higher and the repayment time is typically shorter due to the added risk a lender faces.
Who are boat loans best for?
Boat loans are best for borrowers who:
- Need financing in order to purchase a new or used boat.
- Will take the time to research and compare lenders and options.
- Have high enough credit scores to get low interest rates.
- Have enough income and a low enough debt-to-income ratio to be able to afford the monthly payments.
- Can repay the loan within the appropriate loan term.
What is the average boat loan interest rate?
Interest rates will vary slightly depending on lenders, your credit score, and general economic factors, but between 4-5% is currently considered good value for someone with a strong credit history.
Remember, an unsecured loan may have a higher interest rate (ranging from 6% to 36%), but you won’t be risking any of your assets as collateral as you would with a secured loan.
If you have fair or bad credit, you may only qualify for rates 20% and higher. The better your credit score, the lower rate you’ll qualify for.
What are typical boat loan terms?
In most cases, a boat loan will have a tenor between one to 15 years. This amount of time can vary based on the loan size and down payment provided by the borrower.
Unsecured boat loans typically have shorter repayment periods, and secured boat loan periods can be longer. Just keep in mind that the length of the term can affect how much you pay each month – shorter terms have higher monthly payments but accrue less interest, while longer terms have lower payments but accrue more interest.
Learn more: Boat Loan Terms
Is it smart to finance a boat?
Unless you have tens of thousands of dollars laying around, you will need to turn to boat financing to hit the open seas. Assuming you are in a financial position where you can make all repayments on time, boat financing can be a very smart strategy. This means you have great to excellent credit, qualify for a lower APR, and can work the monthly payments into your budget. Otherwise, taking on a boat loan you cannot afford can destroy your credit score and get you in a cycle of debt that can be difficult to get out of.
Related: Reasons to get a personal loan
Pros and cons of a boat loanAre boat loans like car loans?
When comparing boat loans from different lenders, make sure to look at the interest rate, repayment term, monthly payment and fees. With that said, there are other pros and cons to think about:
On the plus side:
Quick access to the boat you would like to purchase
Ability to make the large purchase without needing tens of thousands in cash up front
Higher loan amounts and lower interest rates on secured loans
The drawbacks:
The risk of repossession or major credit score impacts in the event of default
Higher interest rate on unsecured loans
Alternatives to boat loan
In some cases, a boat loan may not be the right decision for a potential buyer. There are alternative options one can seek, however, to get out on the open seas.
- Pay in full: This option will likely take the longest, possibly many years. The benefit is that you would not pay any interest and would not need to worry about making future payments.
- Rent a boat: Considering renting a boat from a friend on the days you wish to hit the water
- Join a boating club: This is another good option for getting access to a boat.
Boat loans for bad credit
If you do not have the greatest credit score currently, you may be wondering whether bad credit boat loans exist. Without a strong credit score, it is unlikely that you will qualify for a lower interest rate, which means that your total repayment amount may be significantly higher. Even used boat loans may not be as favorable as you’d like when applying with bad credit.
If you have a credit score less than 660, you may face higher interest rates on a loan. If your score is 580 or less, you may have more difficulty even qualifying for a loan.
Loans for boats may have APRs as high as 17% or more when the applicant has a credit score below 600. Additionally, keep in mind that maintenance costs and other factors may make monthly repayments on the loan difficult. Be sure you are in a solid financial position before choosing to purchase a boat, regardless of your credit score.
Pros and cons of boat loans for bad credit
| Pros | Cons |
|---|---|
 Fixed interest |  High interest rates |
| Improved credit score | Less likely to be approved |
| Getting funds to buy the boat | Fewer options |
| Fees |
How do I qualify for a boat loan?
- Check your credit score. You will most likely need a credit score of at least 700 or higher to qualify for the loan and get the best interest rates
- You will need to show proof of income and have a debt-to-income ratio of around 40% or lower.
- Make sure your income covers your necessary monthly expenses as well as this new loan.
- If you don’t have a great credit score but still want a boat loan, you’ll need to provide some kind of asset(s) as collateral, or possibly have a loan cosigner.
How to compare boat loan lenders?
Whether comparing banks, credit unions, online lenders, or other marine financing options, there are several factors to compare to ensure you get the best loan for you. The first step is to get prequalified when you can for a personalized estimate of interest rates, terms, and monthly payments. Specifically, compare:
- Interest rates: Be sure you can qualify for a low rate.
- Terms and conditions: This outlines the number of months you have to repay the loan, and what the fixed monthly payment will be.
- Loan amount: The lender should have the loan amount you need. Also look at minimum or maximum amounts.
- Fees: Origination, application, repayment, and other fees should be compared and factored into your decision.
- Customer service: Check the Better Business Bureau, social media, and other places where past and current customers can leave reviews and ratings about the lender and its customer service. Choose one where you’ll have a positive experience.
How do I apply for a boat loan?
Once you have selected your preferred lender and chosen an amount, fill out the loan application either online or in person. You will need the following documentation in physical or digital format:
Valid State Driver’s
License or State ID
Proof of current
employment
(Paystubs)
Valid checking account
for direct debits
Most recent
W2 or 1099
The lender will also run a hard credit check, which will result in a “hard inquiry” on your credit report that might drop your credit score by a few points. As long as you make the loan payments on time, your score will increase over time.
FAQs
Yes, you can get a boat loan for either a brand new or a used/old boat. As long as you need financing and can’t afford to purchase the boat with current savings, a boat loan may be an option.
Interest rates on a boat loan can depend on your credit score, credit history, income, other debts, and other factors, and they typically range from 4% to 36%. If you have excellent credit, a good, estimated APR would be between 5% – 10%, while those with fair or bad credit may get an APR of 20% or more.
The best way to buy a boat is to first choose the type of boat you want, and then determine whether you want to buy a new or used boat. Then, search listings, work with a broker, attend boat shows, or visit a boat dealer to explore and narrow down your options. Once you decide, you can secure financing for the boat’s purchase.
Whether you want to purchase a fishing boat or a yacht, a boat loan can cover it. Just know that yachts are much more expensive, so you’ll want to be sure the lender you work with offers loans up to that amount. You may also have to explore asset-based loans, using the yacht as collateral.
This is a question only you can answer. Analyze your budget carefully and get prequalified for boat loans online when you can. This can give you an estimate of your monthly payments and interest rate. Be sure you can afford the monthly payment and it fits within your budget. Otherwise, now may not be a great time to purchase a boat.
You can’t technically get a mortgage on a boat, but you can finance a boat through a home equity loan, which is essentially a second mortgage. You can also use a home equity line of credit, which borrows against the equity in your home.
If you have great to excellent credit, a solid credit history, and a decent income, it won’t be difficult to get a boat loan. On the other hand, if you do not have great credit score or strong credit history, or don’t have a reliable income, it will be much more difficult.
If you’re getting a personal loan to finance a boat, try working with a credit union that caters specifically to or works with veterans and military members. You may find they offer lower APR or better terms or have other discounts or benefits for veterans. You can also explore online lenders or banks that have the most favorable terms and interest rates.
Yes, boat loans are similar to car loans in some ways as they bot include a down payment, principal, interest rate, and monthly payments. Plus, both boat and car loans are common ways of financing major new purchases. However, as mentioned before, boat loans, depending on the lender, have more stringent requirements because they are considered luxury items. In addition to credit score and income, the lender may factor in the person’s net worth and liquid assets.
Boat loans and car loans differ in some other fundamental ways. While boat loans are more likely to be secured, requiring collateral such as the boat itself, cars require a personal loan to finance their purchase instead. In boat loan financing, lenders may also pay particular attention to boat maintenance when considering the loan application since they will want to ensure the boat is properly cared for while in the borrower’s possession. Car loans are assessed mostly through credit history and income level of the prospective borrower. Ultimately, boat purchases tend to be much larger investments than cars, making boat loan applications more complex for lenders.
Boat loan limits are important to consider when purchasing a boat. Boat loans issued by lenders usually have an upper limit of around $50,000 – but this may vary in some cases. It’s important to shop around and compare boat loans from different lenders so you can find one that will suit your boat-buying budget. Even if the boat you want to buy is less than $50,000 it’s still worth researching boat loan limits across a variety of boat finance companies so you can make sure you’re getting the best deal for your money.
Boat loans may or may not include insurance as part of the boat financing deal. In some cases, boat lenders extend special boat loan terms that offer boat warranties and other often times costly boat operations coverage. However, it is ultimately up to the boat buyer to secure their own boat loan insurance in case something goes wrong with their boat or boat loan payments. Insurance can protect boat owners from incurring large expenses related to damage and reparations over time.