How to Finance Your Boat
Before you hit the dealership to find your dream boat,
consider how you’re going to pay for this major purchase. While some companies
may offer dealer financing, they won’t necessarily give you the best rate.
Exploring your options in advance puts you in a better place to negotiate and
also ensures you’re not paying any more than you need to. It’s always better to
have more options than none; plus, we’ll tell you how to keep your credit score
in tact while comparing your boat financing options.
Boat Loan
The most obvious option to finance your boat is with a boat
loan. Specialized lenders use this product to help borrowers fund their boat
purchase. The boat is used as the collateral for the loan. So while it’s not
entirely unsecured, you’re not having to put up any existing assets as the
collateral. It’s very similar to the way a car loan works. If you default on
the loan, the lender would repossess the boat in order to take care of the
amount owed on the loan.
Like any other loan, your interest rate depends on your
credit score. If you have lower credit, you’ll receive higher interest rates,
making your monthly payments higher. Your required down payment may also
fluctuate depending on the lender and your credit. When taking out a boat loan,
your down payment could range anywhere between 10% and 25% of the purchase
amount.
That means if your boat costs $50,000, you’ll need anywhere
between $5,000 and $12,500 as your down payment. This is definitely an
important detail to figure out with a lender before you get too far down the
application path.
Personal Loan
If you have good credit, you could apply for an unsecured
personal loan to finance your boat. Also known as a signature loan, you don’t
need any collateral to qualify for the loan. Even your boat can’t be taken away
if you end up defaulting on the loan. Of course, you’ll face other consequences
like damaged credit and an account in collections, but your personal property
will be safe.
Using an unsecured personal loan to finance your boat may come with higher interest rates, but lowers your personal risk.
Personal loans for boats can be found with online lenders as
well as banks or credit unions. Another online option is through peer-to-peer
lending. The down side is that even though you get a more risk-free loan,
you’ll probably have to pay a higher interest rate.
Home Equity Loan
Another option to finance your boat is for homeowners who
have a large amount of equity in their property. You can tap into this money a
couple of different ways. The first way is through a home equity loan. This is
essentially a second mortgage and lets you borrow one lump sum. You make
monthly payments over a certain period of time, often between 5 and 15 years.
The other option is to get a home equity line of credit. You
can choose between getting a lump sum or drawing on your account as you need
cash. To finance a boat, you could opt for the lump sum if you choose. You only
accumulate interest on the amount you borrow and again repay the borrowed funds
over a set period.
There is a bit more red tape with these home equity products
because you need to get an appraisal to confirm your home’s value. You also
need to pay closing costs with a home equity loan. On the plus side, you may be
able use your loan payments as a tax deduction. You can also get lower interest
rates with a home loan than with other unsecured loans.
The reason for this, of course, is that your home is the
collateral for these loans. So while you certainly can use a home equity loan
to finance your boat purchase, know that if you can’t keep up with the loan or
HELOC payments, you could lose your home.
How to Qualify for a Boat Loan
No matter what route you ultimately choose to finance your
boat, you definitely want to shop around for multiple offers first. You don’t
need to worry about multiple inquiries hurting your credit score as long as you
complete your loan comparisons within a few weeks.
To make sure you’re as prepared as possible, make sure you
understand your current credit score. This has a huge impact on your interest
rate, which affects your monthly boat payments. Your credit score is influenced
by the following factors:
- Payment history
- Amounts owed
- Credit mix
- Hard inquiries
- Negative information
Check to make sure everything on your credit score is
accurate so you don’t end up paying more than you need to.
Also think about how much you can comfortably spend each
month on your boat payment. Your lender will look at your debt-to-income ratio
to determine how much of a loan you’ll be approved for. But that doesn’t mean
you necessarily should take out a loan of that size. You’re the one paying your
bills each month, so it’s important to make sure you have the ability to meet
all of your current financial obligations, as well as any emergencies that may
pop up. That’s how you should really figure out your budget for your boat.
Frequently Asked Questions
How long can you get a boat loan for?
Boats retain their value more so than cars do, so you can expect a longer loan term. The average length is about 10 years, which helps to spread out monthly payments. In some instances, you may even be able to get a boat loan as long as 30 years, though this is less common.
How much of a down payment do you need?
If you finance through a dealer, you may be able to qualify for a special on a zero down payment boat. This upfront savings, however, is usually compensated for with higher interest rates. For typical boat loans, you can expect to pay between 10% and 25% of the purchase price as your down payment.
What credit score do you need?
Credit score requirements vary by lender. If you don’t have good credit, you may have to shop around more to find a boat lender willing to work with you. Just make sure your monthly payments are still affordable with potentially higher interest rates.
How long does it take to get approved for a boat loan?
With an online boat loan, you could get approved within hours. Other lenders may take a day or two to process your application. When using a home equity loan or HELOC to finance your boat, it could take a month or more to close on the loan.
Find a lender for your boat loan today!
Ready to hit the water? Apply for a boat loan today with one of these top rated lenders.
by Lauren Ward
Personal Finance Writer
Lauren Ward is a personal finance writer with nearly ten years of experience covering topics like loans, credit, and real estate. She lives in Virginia with her husband and three children.
