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.
Pros and cons of a boat loan
Boat loan rates, tenor, principal, repayment schedules, and more are all factors to consider when evaluating boat loans. 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 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. The option that will likely take the longest is to save up for the boat and pay in full when you are ready, but this could take many years. The benefit is that you would not pay any interest and would not need to worry about making future payments.
Considering renting a boat from a friend on the days you wish to hit the water or joining a boating club are also great options 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.
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.
How do boat loans work?
As mentioned, a boat loan is setup quite similar to a car loan with the following conditions:
Your down payment is the amount of your own money you are going to put down today.
This principle will be the cost of the boat remaining after subtracting the down payment.
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.
Tenor 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.
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.
A secured boat loan uses the boat you purchase as collateral. This means that if you fail to make your payments and you default on the loan, the seller of the boat can repossess it legally. Down payment is typically required for a secured boat loan, but the interest rate you receive will likely be lower. The loan limit and repayment term are usually higher and longer respectively.
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.
FAQs / Commonly asked questions about personal loans
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 the down payment provided by the borrower.
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.
Yes, boat loans are extremely similar to car loans. Including a down payment, principal, interest rate, and monthly payments, both boat and car loans are common ways of financing major new purchases.
Qualification criteria for boat loans varies from lender to lender. Be prepared to provide personal information such as: full legal name, address, employment history, etc. You will also likely need to provide your yearly income and will have your credit pulled. Should you meet the specific lenders’ criteria, they will offer you a loan.