Boat Financing: Is It A Smart Move?

Financing a boat is a big decision that requires careful consideration of various factors. It's important to understand the financial implications and explore different options to make an informed choice. Before applying for a boat loan, it's crucial to evaluate your budget, credit score, and the ongoing costs associated with boat ownership.

Boat loans are typically secured or unsecured. Secured loans require collateral, which could be the boat itself or another asset, while unsecured loans are based primarily on creditworthiness. The type of loan chosen will impact the interest rates, repayment terms, and potential risks in case of default.

Additionally, it's essential to consider the total cost of owning a boat, which includes maintenance, insurance, and storage fees. These expenses can add up to thousands of dollars annually. Therefore, it's recommended to assess how often you'll use the boat to determine if the investment is worth it.

To make a well-informed decision, it's advisable to compare multiple lenders and their terms. By considering these factors and doing thorough research, you can decide if financing a boat is the right choice for you.

Pros and cons of financing a boat vs. renting

Pros of financing a boat

• You can use it whenever you want, without having to plan around a rental company's schedule.
• You can customise the boat to your liking, such as with a paint job or decor.
• You can maintain the boat to your standards and easily track maintenance so you don't have to wonder about its condition.
• Depending on the cost of renting in your area and the type of boat you want to rent, it may still be cheaper to own.
• You can choose the boat you want, rather than being limited to the boats available for rent.

Cons of financing a boat

• Boats are expensive. Owners must pay for gas, maintenance, storage, insurance and off-season maintenance.
• Boats lose their value over time.
• You will likely need to take out a loan to finance the boat, which will incur interest charges.
• Boats require regular upkeep and cleaning, which can be time-consuming and costly.
• You will need to find storage for your boat.
• Boats require a lot of time and money to slow down the wear and tear they will inevitably face.

Pros of renting a boat

• Renting is a more cost-effective way to enjoy the boating lifestyle without the long-term commitment.
• You can try out different types of boats to see which you prefer.
• There is no long-term commitment—you don't have to take the boat out a certain amount to make it feel worth it.
• You don't have to worry about any maintenance tasks or figure out where to store the boat when you're finished using it.

Cons of renting a boat

• Renting can be more costly in the long run if you plan to go boating frequently.
• The boat may not be in good condition.
• You have less freedom—rental companies often restrict where you can go and what you can do in the boat.
• Availability can be an issue. You may not be able to rent a boat if you don't book in advance.

How to apply for a boat loan

Applying for a boat loan is similar to applying for a car loan. The process is straightforward, but there are a few things you need to do to prepare and a few key differences to be aware of.

Check Your Credit Score

Lenders will check your credit score to determine your creditworthiness. The higher your score, the more you can borrow, and the lower the interest rate you will have to pay. Secured boat loans may require higher credit scores than auto loans, so it is worth checking your score before you apply.

Calculate How Much You Need to Borrow

Use a boat loan calculator to get an idea of how much your monthly payments will be. This will help you understand what you can afford and how much you need to borrow. Remember to include costs such as taxes, registration, insurance and maintenance in the total loan amount.

Gather the Required Documentation

To keep the loan process moving smoothly, you should have copies of important financial documents to hand. This includes brokerage account statements, proof of residence, your driver's license, and information about the boat you wish to purchase.

Prequalify and Compare Lenders

Try to work with lenders that offer the option to prequalify for a boat loan. When you prequalify, lenders will show you the rates and terms you could receive after submitting a full application. This allows you to compare potential offers without a hard inquiry on your credit.

Submit a Full Application

After choosing a lender, you will generally finish the application process online. You will need to provide all the documentation gathered in step 3, and the lender will perform a hard credit check. If you are taking out a secured loan, you may have to wait for a marine survey report to assess the boat's value.

Get Approved and Finalise the Loan

You should get a final answer within a few hours or a few days, depending on the type of lender and whether you prequalified. If your application is successful, the funds will usually be directly deposited into your bank account or sent to the lender.

What to consider before applying for a boat loan

The total cost of owning a boat

Before applying for a boat loan, it is important to consider the costs beyond the monthly payments. These expenses include slip fees, winterizing, towing, land storage, fuel, boat insurance, repairs, maintenance, registration, and taxes. It is also important to note that maintenance costs for a boat are equal to 10% of the total cost of the boat. For example, a $40,000 boat would require about $4,000 a year for maintenance. On average, one can expect to pay anywhere from $5,000 to $8,000 a year in addition to the monthly payment.

Your budget and credit score

As with any big purchase, it is important to ensure that your future boat loan payment fits within your monthly budget. Take an inventory of your debts, minimum payment dues, and other financial obligations to understand how much boat you can afford. Most boat loans are issued based on credit. The higher your credit score, the better your chances of getting approved for the loan, and the lower the interest rate you will have to pay. Check your credit score and credit report to see where you stand, and build your credit before applying for a loan if necessary.

The type of loan you'll need

Boat loans can be secured or unsecured. With a secured loan, an asset is required as collateral if you default on the loan. Unsecured loans do not require any collateral and are issued based almost entirely on credit. If your credit needs work, a secured loan may be the better option as they tend to be easier to qualify for and have lower interest rates. However, if you default on a secured loan, you could lose the boat or any other asset that was used as collateral. Unsecured boat loans are better suited for those with good-to-excellent credit and strong finances.

How often you'll use the boat

If you're thinking of using your boat occasionally, taking on the debt and other expenses that come with owning a boat may not be worth it. You may be better off renting a boat for specific occasions, as it will save you money on insurance costs, maintenance, and other fees. According to the U.S. Coast Guard, the average boat in the U.S. is only operated for 54 days a year.

The down payment

Depending on the lender, you may be asked to make a down payment of between 10% to 30% of the total loan amount, which is more common with secured loans. A down payment can help hedge against the boat's depreciation and lower your monthly payment and the total amount of interest you pay.

The total cost of owning a boat

Owning a boat is a costly affair. The average new boat costs $174,000, but prices vary depending on the type, whether it's new or used, and its condition. Maintenance, insurance, fuel, registration, repairs, storage, safety equipment, and taxes are just some of the additional costs to consider.

Maintenance costs for a boat typically amount to 10% of the boat's price per year. For example, a $20,000 boat would cost about $2,000 annually to maintain. Maintenance includes painting the hull, cleaning the deck, winterizing, and replacing parts as needed.

Fuel costs depend on the size of the boat. Smaller boats may use regular or premium gasoline, while larger boats require diesel, which is more expensive. A motorboat, for instance, could cost over $300 in fuel for a five-hour trip.

Boat insurance typically costs around 1.5% of the boat's value. For a $20,000 boat, insurance would be approximately $300 per year. Some states also charge boat taxes, which must be paid annually, and there may be a one-time sales tax upon purchase.

Storing a boat when not in use is another significant expense. Indoor storage provides better security and eliminates the need for winterization but is more expensive. Outdoor storage is more affordable but may result in higher maintenance costs to protect the boat from the elements. Marina storage fees can range from $1,000 to over $5,000 per season, depending on the region and type of storage.

Other costs to consider include safety equipment such as life jackets, a fire extinguisher, visual and sound signalling devices, and a medical kit. A trailer to transport the boat is another expense, ranging from $700 to over $10,000, and you will also need a vehicle capable of towing the boat and trailer.

Overall, the total cost of owning a boat goes well beyond the initial purchase price, and these additional expenses can quickly add up, making it a significant financial commitment.

How to qualify for a boat loan

Qualifying for a boat loan is similar to applying for an auto loan. Here are some steps to follow to qualify for a boat loan:

• Check your credit score: Lenders will check your credit score to determine your creditworthiness. A higher credit score will allow you to borrow more at lower interest rates and longer terms. Typically, secured boat loans require higher credit scores than auto loans. If your score is not in the good-to-excellent range, you may want to consider unsecured personal loans.
• Calculate how much you need to borrow: Use a boat loan calculator to estimate your monthly payments based on the potential loan term and interest rates. Consider the costs of taxes, registration, insurance, and maintenance in your calculations.
• Gather the required documentation: Important financial documents such as brokerage account statements, proof of residence, driver's license, and employment information will be needed for the loan application. For secured boat loans, information about the boat may also be required.
• Prequalify and compare lenders: Work with lenders that offer prequalification for boat loans, which will show you potential rates and terms without impacting your credit score. Compare offers from multiple lenders to find the best option for you.
• Submit a full application: After choosing a lender, complete the application process, which may be done online. The lender will perform a hard credit check and may request additional documentation before finalising the loan.
• Wait for approval: The time it takes to receive approval can vary depending on the lender, ranging from a few hours to a few days. For secured loans, a marine survey report may be required to assess the boat's value.

It is important to consider the costs of boat ownership, including maintenance, storage, insurance, and fuel, when deciding whether a boat loan is the right choice for you.

Frequently asked questions