You've done it! You finally know what kind of boat you want. You've done all of the work to find the perfect boat for you.
Now, it's time to secure the boat financing you need to actually get the boat that you've had your eyes on.
Whether you're looking for new boat financing or used boat financing, we can help you with our boat financing guide.
All you have to do is keep reading.
Types of Boat Loans
Before we get to our boat financing tips, you need to understand what types of boat loans you can get your hands on.
Just like with other kinds of loans, each kind of boat loan has its own advantages and disadvantages. You should figure out which kind suits you best before you start talking to lenders.
Secured Boat Loans
A secured personal loan gets backing from collateral. This means that the lender takes your collateral as payment if you're unable to pay back the loan.
With boat loans, the boat is typically the collateral that the lender can take back if the loan goes unpaid. This is also known as repossession.
Unsecured Boat Loans
An unsecured boat loan doesn't involve using collateral. So, neither the boat nor any other property gets repossessed if you default on the loan.
Because there is no collateral connected to the loan, unsecured boat loans are riskier. So, the interest rates for these loans are higher than those of secured loans.
However, unsecured boat loans give you more options for how to use the loan. Unsecured loans are a type of personal loan, so you may be able to apply the money to other expenses.
Second Mortgage Boat Loans
If neither of the previous options suits your needs, you may prefer taking out a home equity loan, which is a type of second mortgage. In this case, your home would act as collateral for the boat loan.
Since this is similar to secured boat loans, second mortgage boat loans have lower interest rates. They have collateral, so they're less risky than unsecured loans.
Although these loans may be less risky to lenders, they could hold a great risk for those receiving the loans.
Keep in mind: you're using your home as the collateral. If you don't make a payment, you're going to lose your home.
If you're going to opt for this kind of loan, you need to be confident that you're going to be able to make all of your payments on time.
How Boat Loans Work
Boat loans work similarly to car loans. You have to worry about down payments, mortgage terms, interest rates, and more.
Your competitiveness depends on your past financial history, including your credit score.
Boat Loan Repayment Terms
If you're planning on getting a secured boat loan, you may be able to get a loan term for any time up to 20 years. Of course, the exact amount of time is going to depend on the amount of money that you're taking out and who you're getting the money from.
If you're planning on getting an unsecured boat loan, you're going to have to get a shorter term. Typically, these kinds of loans don't last more than five to seven years.
Keep this in mind: the longer your loan is, the more money you're going to pay in interest.
Down Payment Recommendations
In most cases, lenders will want you to put some kind of payment down on the boat loan. Usually, they'll recommend or request for you to put down 10% to 20% of the boat's total cost.
Some lenders offer loans with 0% down payments. However, you should try to put down some kind of payment on the boat before opting for the loan.
If you don't put some kind of down payment on the loan, you'll end up owing more for the boat than it is worth.
Not only can the down payment prevent that, but it can also lower your monthly payment and the total amount of interest that you pay on the boat loan.
Boat Loan Interest Rates
Interest rates on boat loans tend to stay fixed. The interest rate that you get on your boat loan will vary depending on who's lending you the money and what your credit history is like.
Some lenders offer 4% to 6% annual percentage rates (APRs) on secured boat loans. However, the type of boat, the model year of the boat, your credit history, the loan term, and the loan amount will all affect your final rate.
Where to Get a Boat Loan
When you're looking to get a boat loan, you have three options:
- Your boat dealer
- Your bank
- A private lender
No matter which option you choose, you're going to need to have a great credit score with good financial health.
1. Your Boat Dealer
Most people who get boat loans choose to go through their boat dealer. Since boat dealers set up boat loans every single day, they have the experience and expertise that it takes to get you the loan that you deserve.
Plus, you'll be able to establish a long-term relationship with the dealership by showing them that you can make regular payments for your boat in full and on time. So, you'll be able to use this as sales leverage in the future.
Boat lenders are also experts on boat insurance, fun boating activities, boat accessories, and anything else you may want to know about.
2. Your Bank
Your bank (or another bank) could offer great boat loans, too. Although, most banks are only going to offer boat loans through second mortgages. Remember, these are the kinds of boat loans that require you to post your home as collateral for the loan.
Some buyers want to take out these kinds of loans so that they can take advantage of lower interest rates and/or tax breaks.
Just keep in mind that the bank will have the ability to take ownership of your home if you fail to make payments.
3. A Private Lender
If you're going to opt for getting a loan from a private lender, you should make sure that the lender you're working with specializes in marine financing. Working with a specialist is the best, considering that boat financing is just slightly different than any other kind of financing.
If you'd like to find someone who specializes in marine financing, you can search through the National Marine Lenders Association.
What to Consider Before Applying for a Boat Loan
Before you apply for any of these kinds of boat loans, there are a few considerations that you need to make.
Getting a boat loan isn't an everyday decision. You should think about the financial responsibility that comes with making this choice.
Your Credit Score
First, you need to consider your current credit score. Just like any other loan, your credit score matters when it comes to getting a boat loan.
Most lenders are going to require that you have a great credit score, a generous down payment, and a low debt-to-income ratio.
Some lenders will settle for less than these terms. However, you're going to end up getting a much higher interest rate than if you were to meet all of these criteria.
If you happen to not meet one or some of these criteria, you may want to wait until you have the financial stability to meet all of them. The waiting may be worth the lower interest rate.
The Real Cost of Owning a Boat
Buying the boat isn't the only cost that you need to consider. The full price of the boat is not the sum of every expense that you're going to make on that vehicle.
Just like you do with a car, there are going to be other expenses that you need to keep in mind:
- Fuel
- Taxes
- Insurance
- Registration
- Storage
- Maintenance
- Repairs
- Accessories
The real cost of owning a boat is much higher than the cost of buying the boat initially.
Before applying for a loan, you need to understand what you're about to get yourself into. If you can barely afford to pay the loan, it's not a good idea to get wrapped up in owning a boat.
Boat Inspection Results
If you're not getting a brand new boat, you need to get a marine survey. During this survey, a certified inspector will look at all kinds of important features:
- The structural integrity of the vessel as a whole
- The inner workings of the engine and the trailer
- The detail of the boat's current condition
- The overall safety of using the boat on the water
After the inspection, you'll know whether the boat is worth buying. You'll have a detailed list of any faults with the vehicle and you'll know what kinds of repairs it may need before you start using it.
Without this inspection, you could be unknowingly taking a broken boat out onto the water. Needless to say, this isn't safe.
On top of the general condition, the boat inspector can tell you a lot about the actual value of the boat. This actual value can help you in sales negotiations and in securing boat financing.
How to Apply for a Boat Loan
Applying for a boat loan is similar to applying for any other kind of loan. If you've ever had an auto loan or a personal loan, you already know the process more than you think you do.
First, you'll need to find a lender. Once you've done this, you may be able to apply online or in person.
Next, you'll need to provide the necessary information for the loan:
- The loan amount
- The purchase price of the boat
- The type of boat you're purchasing
- The age of the boat
- Your employment information
- Other important financial details
The more information you can provide, the better.
When the lender checks your credit score, they're going to perform a hard credit inquiry. This may temporarily lower your credit score by a few points, so you don't want too many of these hard credit checks in a short period of time.
Once you've handed over all of your information, you'll just have to wait to see if you get approval from the lender. You could receive this information as soon as the next business day. The timeline will depend on the lender that you're hoping to work with.
What to Do Now
Now that you've learned everything there is to know about boat financing, what should you do now?
Well, you need to figure out where you can get a loan. As you're searching for the right loan for you, you need to make sure that you're taking the time to shop around.
Compare offers from multiple different lenders so that you can find the perfect offer that fits your current financial needs.
Once you've found the offer of your dreams, apply for it. Then, wait patiently for a response. (Hopefully, it'll be a bright, shining email of approval.)
After approval, you'll need to review several documents before it's official. Getting the email doesn't mean that you have the money yet.
You'll need to read through and agree with several documents that list the terms and conditions of the loan. Make sure that the terms and conditions on the signing documents match those that you and the lender agreed upon.
Once you've signed the documents that the lender requires, it's time to buy the boat of your dreams. Then, you can set sail.
An Alternative to Boat Financing
If you find that you can't get the boat financing that you need right now, it's okay. There are plenty of other options out there that can help you get out on the water.
One of the most popular options is a boat club membership. With a monthly fee that's lower than a boat loan payment, you can have access to a fleet of boats that come in all sorts of types and sizes.
If you're ready to get out on the water without breaking the bank, join our boat club today!