Understanding Boat Loans: Financing Your Dream Vessel

Boat loans are a type of personal loan used exclusively for purchasing boats or other marine crafts. They are set up like car loans, with a specific loan amount that you pay interest on over a fixed term. The average boat loan term ranges from two to 15 years, but some lenders offer extended repayment terms of up to 20 years for larger loans.

Interest rates and how they work

Interest rates on boat loans are typically fixed and can vary widely depending on the lender and your credit profile. As of April 2023, some lenders offer starting annual percentage rates (APRs) of about 7% to nearly 10% on secured boat loans.

Factors such as the boat type and model year, your credit history, loan term, and loan amount will affect your interest rate. For example, if you have excellent credit, you may be offered a lower interest rate than if you have subprime credit.

Interest rates on boat loans can range from 5.49% to 18%, depending on credit, the age of the vessel, and the down payment. These rates can change based on market conditions. As of December 2022, interest rates ranged from 5.25% to 7% for those with excellent credit. With less-than-perfect credit, you can expect a rate closer to 18%.

The best place to get a used boat loan is usually with a local credit union. It is also worth applying with a marine lender or a boat dealer's finance department.

How to apply for a boat loan

Applying for a boat loan is similar to applying for a personal loan or auto loan. Here are the steps you can take to apply for a boat loan:

Check Your Finances and Credit Score

First, you should have a firm grasp on your personal financial details. This includes your savings, debt-to-income ratio, and monthly budget. Lenders will often want to see a down payment of 10% to 20% of the boat's sales price, so ensure you have this prepared. Additionally, check both your credit report and credit score before applying for a loan. A higher credit score will help you secure a loan with more favourable terms.

Gather Your Financial Documents

To streamline the application process, gather all the required documents in advance. This includes a copy of your government-issued photo ID, your most recent pay stub, the last three months of bank account statements, the past two years of tax returns or tax transcripts (if self-employed), and proof of address for the past three years.

Get Pre-Qualified With Lenders

It is recommended to get pre-qualified for boat loans before you start shopping. This will help you understand what loan rates and terms you are likely to be offered. You can get pre-qualified by providing lenders with basic information such as your Social Security Number, name, and address. They will usually do a soft pull of your credit report, which won't impact your credit score. Getting pre-qualified with multiple lenders will give you a range of quotes to choose from.

Find a Boat and Get a Marine Survey

Once you have a good understanding of your finances and pre-qualification offers from lenders, you can start looking for a boat. When you have found a boat that you are interested in, get a marine survey done. A marine survey will provide an overview of the boat's condition and help you and the lender assess whether it is a good investment.

Complete Your Loan Application

Go back to the lenders who provided you with the most favourable pre-qualification offers and inform them that you would like to proceed with the loan application. In addition to the documents you have already gathered, lenders who specialize in boat loans will also require information about the boat, such as its make, model, length, and year, as well as the results of the marine survey. Stay in close communication with your chosen lender and provide any additional information or documents promptly to speed up the loan approval process.

Get Boat Insurance

Similar to auto loans, lenders will generally require you to get boat insurance before the sale is finalized. Most insurers will want to see the results of your marine survey before offering you a policy. You can check with your current insurer to see if they offer bundling discounts for adding boat insurance to your existing policies.

Finalize the Loan and Get Your Boat

Once your boat loan financing is lined up, the lender will send the funds to the boat seller. Ensure that the title and registration are properly recorded. Lenders are generally listed as lienholders on the title for secured boat loans. Remember to sign up for autopay on the boat loan to avoid missing payments and preserve your credit score.

The pros and cons of boat loans

Boat loans are a type of personal loan used exclusively for purchasing boats or other marine crafts. They are set up like car loans, with a fixed loan amount that you pay interest on over a fixed term.

Pros

• Breaks up the cost of a boat into smaller, more manageable instalments.
• Depending on the lender, boating-related expenses may also be covered.
• Interest rates are low for those with a good credit score.
• Payments can be low with a long-term loan.

Cons

• May be difficult to be approved for larger amounts.
• Secured loans will risk your collateral if you default.
• High interest rates could lead to paying much more than you originally borrowed.
• Longer loan terms mean paying more interest over the life of the loan.

The different types of boat loans

Boat loans are set up like car loans, with a fixed interest rate and a specific loan amount paid over a fixed term. There are two main types of boat loans: secured and unsecured.

Secured Boat Loans

Secured boat loans require borrowers to put up collateral, such as the boat itself, to back the loan. This means that if the borrower defaults on the loan, the lender can take the collateral as repayment. Secured boat loans typically have longer repayment terms, with some lenders offering terms of up to 20 years. These loans often have lower interest rates than unsecured loans but come with the risk of losing your collateral if you default.

Unsecured Boat Loans

Unsecured boat loans do not require collateral, which means that lenders view them as riskier. As a result, they typically come with higher interest rates and shorter repayment terms, usually no more than five to seven years. Unsecured loans may offer more flexibility in how the funds can be used.

Other Types of Boat Loans

In addition to the two main types of boat loans, there are a few other options to consider:

• Home Equity Loans: These loans use the borrower's home equity as collateral. While they can provide access to larger loan amounts, they come with the risk of losing your home if you default.
• Subprime Boat Loans: These loans are available to borrowers with subprime credit but typically require a sizeable down payment and a low debt-to-income ratio.
• Marine Dealership Financing: Some marine dealerships offer in-house or third-party financing options specifically for boating-related purchases, which may include perks like extended service plans and insurance coverage.

What to consider before applying for a boat loan

Before applying for a boat loan, there are several factors to take into account. Here are some key considerations:

• Your credit score: Lenders typically require a credit score of 680 or above for boat loan approval. A higher score can also help you secure a lower interest rate. If your credit score is lower, you may still be eligible for a boat loan but be prepared for a higher interest rate.
• Down payment: While not all lenders require a down payment, some may ask for a down payment of 10% to 20% of the boat's purchase price. A larger down payment can also improve your chances of approval and help you secure a better interest rate.
• Loan term: Boat loan terms can range from 2 to 20 years. Longer loan terms result in lower monthly payments but higher overall interest costs. Consider what loan term best fits your budget and financial goals.
• Interest rate: Interest rates for boat loans vary widely, typically ranging from 7% to 35.99%. Your credit score, finances, and loan type (secured or unsecured) will impact the interest rate you qualify for.
• Total cost of ownership: Remember to factor in the ongoing costs of boat ownership, such as maintenance, storage, insurance, fuel, and docking fees. These expenses can significantly impact your budget, so it's important to consider them when deciding if a boat loan is right for you.
• Marine survey: If you're purchasing a used boat, consider getting a marine survey to assess the vessel's condition and determine its safety. This can help you identify any potential issues and ensure you're making a sound investment.
• Lender options: Boat loans are available from various sources, including banks, credit unions, boat dealers, and marine finance companies. Shop around and compare offers from multiple lenders to find the best terms and rates for your financial situation.

Frequently asked questions