Buying a boat is an exciting prospect for any seafaring enthusiast. However, boats can be quite expensive, often costing tens or even hundreds of thousands of dollars depending on the size and type of vessel. As a result, many people need to take out a loan to make their dream of owning a boat a reality.
In this comprehensive guide, we’ll cover every guide to boat loans in 2024 so you can find the best financing option for your needs.
What is a Boat Loan?
A boat loan is a type of secured loan used to finance the purchase of a new or used boat. The boat itself serves as collateral on the loan, meaning the lender can repossess the boat if you default on the loan.
Boat loans work similarly to auto loans or mortgages. You’ll make a down payment, then receive loan financing from a lender for the remaining cost of the boat minus your down payment. You’ll make monthly payments including interest over a set repayment term until the loan is paid off.
Boat loans can be obtained from banks, credit unions, online lenders, and even boat dealerships. Interest rates and terms vary by lender.
How Do Boat Loans Work?
When you take out a boat loan, the general process works like this:
- Determine your budget: First decide how much you can realistically afford to spend on a boat, including loan payments, maintenance, insurance, storage fees, fuel, etc. This will help guide your boat search.
- Get pre-approved: Talk to lenders to get pre-approved for a boat loan amount based on factors like your credit score, debt-to-income ratio, and down payment amount. This shows sellers you’re a serious buyer.
- Find the boat you want: Once pre-approved, you can confidently start shopping for boats within your budget. Consider the make, model, age, features, etc.
- Make an offer: When you find the perfect boat, make an offer contingent on securing boat loan financing.
- Complete loan application: Work with your chosen lender to complete the full loan application and provide required documents.
- Lender appraises boat: The lender will hire an appraiser to ensure the boat is worth the loan amount.
- Close on your loan: After the appraisal, undergo a final credit check, then sign loan documents and receive your financing!
- Make payments: Like a car loan, you’ll now make monthly payments over several years until your boat loan is fully paid off.
Boat Loan Interest Rates
Interest rates are a major factor when shopping for a boat loan. Rates largely depend on your credit score and history. In general, excellent credit (scores above 700) qualify you for the lowest rates. You’ll pay higher rates for fair credit (640-699) or bad credit (below 640).
Here are average boat loan rates as of November 2023 for borrowers with good credit:
- 5-7 years: 5.5% – 9%
- 10-15 years: 6% – 10%
- 20-30 years: 7% – 12%
Online lenders like LendingClub and Lightstream start with rates as low as 3.99%. Banks and credit unions offer average rates of 5-10%.
Several factors impact your specific rate offer:
Credit score – The higher your score, the lower your rate since you’re deemed less “risky.” Scores below 600 may disqualify you.
Loan term – Longer terms equals more interest paid over time, so shorter terms have lower rates.
Down payment – Larger down payments can qualify you for a lower rate. A 20% down payment is ideal.
Loan type – Fixed rates stay the same over the life of the loan. Adjustable rates start low but can fluctuate up or down.
Loan amount – Requesting a small loan generally earns lower rates compared to large loans.
Be sure to compare rates across multiple lenders to find the best deal. Even a small rate difference can save thousands over the loan repayment period.
Boat Loan Terms
When taking out a boat loan, you’ll need to agree to repayment terms including:
Loan amount – How much you’ll borrow to cover your boat costs.
Down payment – The upfront amount you pay toward the boat purchase.
Interest rate – The annual percentage rate (APR) charged on the borrowed amount.
Loan term – The number of months or years you have to repay the loan. Common terms are 10, 15, 20, or 30 years.
Monthly payment – The set amount you’ll pay each month towards principal + interest charges.
Terms greatly impact your overall costs. For example, longer terms have lower monthly payments but higher total interest paid over time. Carefully weigh options to pick terms affordable for your budget.
Boat Loan Eligibility Requirements
To qualify for the best boat loan terms, you’ll generally need:
- Good credit – Minimum credit scores of 620-680 required, but 720+ is ideal. Shows you can handle debt responsibly.
- Sufficient income – Most lenders require gross monthly income equal to 3x the monthly loan payments.
- Manageable debt – Your total monthly debt payments shouldn’t exceed 36% of gross monthly income.
- Down payment – At least 10-20% down is recommended. Bigger is better for securing lower rates.
- Loan co-signer – Adding a co-signer with good credit may help if your credit or income alone disqualifies you.
Alternatives like “buy-here-pay-here” dealers or secured loans against assets can help those with poor credit still finance a boat. But these options charge higher interest rates.
Meeting eligibility requirements proves you can manage extra debt and makes you less of a risk for lenders. This translates to better loan offers.
READ ALSO: Types of Personal Loans and Their Uses
Boat Loan Amounts
How much you can borrow for a boat loan depends on several factors:
- Cost of your boat – Obviously this impacts the loan amount needed. New boats or larger vessels have higher costs.
- Your down payment – The more you put down upfront, the lower the loan amount required.
- Your income and credit – Higher scores and income allow larger loan amounts you can manage repaying.
- Lender limits – Each lender sets their own minimum and maximum loan amounts they’ll provide.
For a $50,000 boat…
- With 5% down, your loan would be $47,500
- With 20% down, your loan would be $40,000
Personal loan amounts range from $1,000 – $100,000. Home equity loans have higher limits but put your home at risk as collateral.
Pick a comfortable loan amount within your budget that still provides enough to purchase the boat you want. Don’t overborrow!
Boat Loan Repayment Term Lengths
Boat loans allow longer repayment terms than other loans to make the monthly payments more affordable. Common terms lengths include:
- 2 – 7 years – Better for smaller personal loans. Results in higher monthly payments.
- 10 – 15 years – Recommended for modestly priced boats. Balance of affordability and interest costs.
- 20 – 30 years – Allows lower monthly payments but higher total interest over decades. Best for large, expensive boats.
Longer terms do lower your monthly payment, but keep in mind:
- You’ll pay more total interest over the life of loans with longer terms.
- You have to pay interest on a depreciating asset longer, unlike a home which may gain value.
- You may want to upgrade your boat before 30 years. Don’t still be paying for it after you no longer own it.
Weigh the pros and cons of repayment terms in line with how long you realistically plan to own your boat. Don’t just default to the longest term to lower monthly costs.
Boat Loan Lenders
Many lenders offer boat loans, but here are some top places to consider:
Banks and Credit Unions
- Banks like Chase and Bank of America provide boat loans, often with discounted rates for existing customers.
- Local credit unions offer competitive rates and excellent customer service due to their member-focused model.
- Established relationships at your existing bank or credit union can help secure pre-approval and financing faster.
Online Lenders
- Companies like LendingClub, Prosper, and Lightstream offer quick online applications and funding directly deposited in your account.
- Online lenders provide loans with fixed rates as low as 3-6% interest for those with good credit.
- They may have less strict credit requirements than traditional banks.
Boat Dealer Financing
- Many boat dealers provide in-house financing options for boats purchased through them.
- This adds convenience but dealer rates are often higher than other lenders.
- Dealer financing terms are usually 60-120 months to keep payments low and sell more boats.
Compare multiple lenders to find the boat loan with the best rates and terms to match your financial needs and goals.
Boat Loan Collateral and Security Interest
Boat loans are secured loans, meaning you back the loan with collateral the lender can seize if you default. For a boat loan, the boat itself serves as collateral for the loan. This gives the lender a “security interest” in your boat until paid off.
If you stop making payments, the lender has the right to repossess and sell your boat to recoup losses on the remaining loan balance. They also may place a maritime lien on the boat’s title to prevent you from hiding, moving, or selling the vessel.
Because of the collateral, boat loans are considered lower risk than unsecured loans. This results in better financing rates and terms compared to alternatives like credit cards or personal loans for the same purchase amount.
However, defaulting on your boat loan has serious consequences. You lose an asset you paid to own. Losing your boat also damages your credit score. Be 100% confident you can manage payments before taking out a secured boat loan.
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Boat Loan Pre-Approval and Pre-Qualification
Before you start shopping for your dream boat, take two key steps:
Get Pre-Approved
- A pre-approval provides a loan offer in writing before you apply. It confirms a lender will provide a boat loan up to a certain amount if you fully apply.
- Pre-approvals require submitting income and asset documentation for underwriting. This verifies you meet eligibility requirements.
- Pre-approval takes more effort but shows boat sellers you’re a serious buyer who’s ready to finance. This gives you an advantage!
Get Pre-Qualified
- Pre-qualification only requires a soft credit check and basic personal details. It predicts loan terms you may qualify for based on your credit score.
- There’s no commitment from lenders. But pre-qualification gives early rate quotes to estimate payments and narrow lender options.
- Pre-qualification is quick and doesn’t impact your credit score like a hard inquiry. Use it to start shopping lenders.
Aim to get pre-qualified across multiple lenders, then submit full documentation to get an official pre-approval letter from your top pick. This sets you up for a smooth boat buying process.
Boat Loan Down Payment Amount
Your down payment is the upfront cash you pay toward the total boat purchase price before financing the rest. Most lenders require a 10-20% minimum down payment on boats. But a larger down payment has advantages:
Lower interest rate – More equity upfront makes lenders view you as less “risky” to lend to. This can earn you a 0.5 – 1% lower rate.
Lower monthly payments – The more you put down, the less you have to finance. Smaller loan = smaller payments.
Shorter repayment term – Large down payments allow shorter loan terms (5-10 years vs. 20-30). You pay off your boat faster and with less interest.
Increased loan eligibility – Bigger down payments improve your debt-to-income ratio and chances of loan approval if your credit or income are marginal.
Equity protection – If the boat loses value, more equity protects you from owing more than it’s worth if you had to sell it.
While tempting to put down as little as possible, a 20% or higher down payment sets your boat loan up for success if you can swing it. Evaluate your savings and current finances to determine the down payment that fits your situation best.
Boat Loan Application Process
Once you get pre-approved and find the perfect boat, it’s time to complete the full loan application. Be prepared with these steps:
Gather required documents – This includes paystubs, W2s, tax returns, bank statements proving your income, debts, and assets. The exact paperwork varies by lender.
Fill out loan application – Provide personal info, employment details, monthly income and expenses. Many applications are available online for convenience.
Get your credit report – Lenders will check your credit history during underwriting. Review your credit reports from Equifax, Experian and TransUnion first to understand your score.
Submit appraisal – The lender will hire an appraiser to verify the boat’s current value matches the loan amount. Typical cost is $400-$500 but may be waived on newer boats.
Sign final disclosures – You’ll receive documents showing the rate, terms, fees, risks, and lending rights before signing the agreement. Read carefully before accepting the loan!
Respond promptly to lender information requests for the smoothest approval experience. Avoid applying for new credit during the process as this can change your score.
Boat Loan Closing Process
The boat loan closing process finalizes all legal paperwork and gets you the financing to complete your boat purchase. Here’s what to expect:
- You’ll undergo a final credit check a few days before closing to verify no new issues have emerged.
- Carefully review the closing disclosure detailing your exact loan costs, fees, and payment schedule. Ask questions!
- On closing day, sign final loan documents and provide any pending down payment funds or affidavits.
- The lender then transfers the approved loan amount directly to the boat seller, dealer, or your linked account.
- Register and transfer the boat title into your name. The lender is listed on the title until the loan is paid off.
- Obtain marine insurance covering liability, injuries, accidents, theft, etc. This is required to protect the lender’s security interest in the boat as collateral.
Once closed, the boat is yours to enjoy! But be sure to make on-time payments each month and properly maintain insurance to avoid defaulting on the loan.
READ ALSO: What’s the Average Personal Loan Interest Rate?
Boat Loan Fees to Expect
When budgeting for your boat purchase, be aware of these common fees so actual costs don’t catch you off guard:
Interest charges – The largest fee, total interest paid depends on your rate and loan term. Budget for this in monthly payments.
Origination fee – Upfront fee of 1-2% of the loan amount to process the application. Lowers amount dispersed directly to you or boat seller.
Application fee – $50-$100 fee covers costs of credit checks and underwriting when applying.
Closing costs – Includes title fees, registration, and other transaction costs due at closing. Ask for an estimate.
Late fees – Ranges from $15 to 5% of the monthly payment if a payment is more than 15 days past due.
Prepayment penalties – May apply if you pay off the loan early, usually during the first 2-3 years of the loan term.
Insurance – Required boat insurance averages $150-$500 per year depending on your boat’s value and owner history. Shop around for the best premiums.
Factor these fees into your total boat buying costs. Compare lenders to find options that charge minimal fees or offer perks like fee waivers for excellent credit.
Alternatives to Boat Loans
Besides traditional boat loans, also consider these options to finance your boat purchase if needed:
Personal loans – Unsecured loans have higher rates than secured boat loans but offer quick funding from online lenders without collateral.
Home equity loans – Lets you borrow against home equity but risks losing your home if you default. Rates are low and interest may be tax deductible.
Credit cards – Easier to obtain but very high interest, so only recommended for smaller purchases you can quickly pay off.
Payment plans – Some boat dealers let you finance through them directly with set payment plans. But these charge the highest rates.
HELOC – Home equity line of credit offers flexibility to draw as needed from available home equity. Rates are variable but interest is usually tax-deductible.
401k/IRA loan – Borrowing from retirement funds avoids credit checks or income requirements but risks huge tax penalties if defaulted. Generally not recommended.
Weigh the pros and cons of each option for your situation. Boat loans offer competitive rates but require good credit and collateral. Seek alternatives if you need more flexibility or accessibility.
Should I Buy or Lease a Boat?
Instead of purchasing a boat outright or financing through a loan, some people consider boat leasing options. This works similarly to leasing a car. You make monthly payments to use the boat, but don’t own it. Here are the tradeoffs:
Benefits of Boat Leasing
- Lower monthly payments vs financing a boat purchase
- Use newer boat models as they release without owning aging assets
- Easier to walk away at lease end instead of selling a owned boat
- Often includes insurance and maintenance costs in lease
- No down payment or collateral required like boat loans
Downsides of Boat Leasing
- Limited annual usage (usually 50-100 engine hours per year)
- Restrictions on boat modifications or transfers to new owners
- No equity – you’ll never own the boat after years of payments
- Potential early termination fees if you break the lease
- Lack of tax deductions available on leased boats
If you only boat occasionally or prefer access without ownership, leasing may save substantially over purchasing. But frequent boaters who want flexibility and equity should still consider financing options.
How to Improve Your Chances of Boat Loan Approval
If your credit score or financial situation currently falls short of lender approval requirements, take steps to boost your odds before applying:
Pay down existing debts – Reduce credit card balances and other debt to improve your debt-to-income ratio.
Check for errors on your credit reports – Dispute any mistakes or outdated info dragging down your credit scores.
Build your credit history – Apply for a secured credit card and make on-time payments to demonstrate responsible usage over 6+ months.
Increase your down payment – Save up to put more money down and reduce the loan amount needed.
Add a co-signer – Ask a family member or friend with good credit to co-sign and improve eligibility.
Explain past issues – Write a letter to lenders addressing any red flags like late payments or bankruptcy to reassure them of your ability to repay.
With some work, marginal borrowers can strengthen their case and still qualify forboat loans at reasonable rates. But rushing into financing before you’re truly ready can saddle you with exorbitant costs or rejection.
Questions to Ask Lenders When Applying
Don’t be afraid to ask lenders plenty of questions when shopping boat loans and submitting applications. Important things to ask include:
- What credit score minimum is required?
- Will you pull a hard inquiry on my credit report?
- What debt-to-income ratio do you look for?
- What down payment percentages do you require?
- Are there loan origination or application fees?
- Do you charge prepayment penalties if I pay off early?
- How long does the application and approval process take?
- How soon can I get funding after approval?
- Do I need to insure the boat during the loan term?
- Is flood insurance required if boating in certain waters?
- Can I add a co-borrower if I don’t qualify alone?
Don’t assume all lenders have the same qualifications and fees. Asking questions upfront prevents surprises and helps you understand what it takes to get approved.
What to Do If Your Boat Loan Application is Denied
A boat loan denial doesn’t have to end your boat buying dreams. Here are constructive steps to take if you don’t get approved at first:
Ask why – Find out the specific reasons for denial so you can address them. Common reasons include high debt, low income, or poor credit history.
Review credit reports – Mistakes on your credit reports could unjustly impact your score and eligibility. Dispute errors to improve your case.
Apply with a co-signer – Adding someone with better credit and income could help you qualify and get better rates. Offer to make payments so they aren’t financially burdened.
Improve your credit – Take steps over the next 6-12 months like paying down balances, disputing errors, or opening a new credit card to responsibly build your credit history. Then reapply.
Save a bigger down payment – Putting down 20% or more improves your chances and earns lower interest rates. Wait to buy the boat until you’ve saved enough.
Provide explanations – Write letters explaining past red flags on your report, highlighting recent improvements, and reassuring your ability to make payments.
Don’t get discouraged if your first boat loan application is denied. Tweak your financial profile and try again in a few months. Being patient pays off.
READ ALSO: The Ultimate Guide to RV Loans in 2023
Compare Boat Loan Offers Carefully
When multiple lenders approve you, the temptation is to just accept the first boat loan offer. But taking your time to compare offers is vital to ensure you get optimal financing.
Here are key factors to compare across lenders:
- Loan interest rate – Even a small rate variance equals thousands in interest savings.
- Loan fees – Consider origination, application, and processing fees. They add up.
- Loan term options – Weigh monthly payment affordability against total interest costs.
- Prepayment policies – Major penalties can negate savings from refinancing later at a lower rate.
- Co-borrower options – Adding a co-signer with good credit can lower your rate.
- Discount perks – Look for interest rate reductions for autopay, existing customer status, or opening a new account.
- Customer service reputation – See reviews on responsiveness, transparency, and tools.
Don’t feel rushed into committing. Take your time reviewing the fine print from each lender. Pick the most affordable loan with the lender you trust.
Refinancing a Boat Loan
After buying your boat, you may eventually want to refinance the loan for better terms, just like refinancing a mortgage. This makes sense if:
- Your credit score has improved significantly to qualify for lower interest rates.
- Interest rates in general have dropped and you want to lock in savings.
- You want to remove a co-signer from the existing loan.
- You need to lower the monthly payment amount.
- There are no prepayment penalties on your current loan.
To refinance, choose a new lender and they will pay off your existing boat loan balance. You get a new loan with better terms and start fresh payments. Refinancing can get you lower rates and monthly payments, but resetting the loan “clock” means you’ll likely repay over a longer timeframe again in total unless you shorten the new term length.
Carefully consider whether refinancing aligns with your payoff goals before absorbing fees to switch lenders and reset to a longer repayment schedule.
Tips for First Time Boat Buyers
If this will be your first time purchasing and financing a boat, keep these tips in mind:
- Attend local boat shows to explore different models and features in person before committing to a specific boat. Taking “test drives” can help narrow your preferences.
- If buying used, bring someone experienced with engines, maintenance, and identifying issues to inspect the boat with you before purchasing.
- Get insured early. Boat insurance is required for loans, varies widely in cost, and you want no gaps in coverage.
- Understand ongoing costs like insurance, maintenance, storage fees, trailer costs, fuel, etc. beyond just the loan payment before deciding if owning a boat fits your budget long-term.
- Be realistic about how often you will use the boat initially. We all have good intentions that fade over time. Buying too much boat for limited usage is unwise.
- Consider an older, less expensive boat for your first purchase to get experience before upgrading down the road.
- Don’t just default to the maximum loan term length to lower payments. Aim for the shortest term you can manage to pay the boat off faster.
Taking the time upfront to research, create a budget, find the right boat, and secure favorable financing goes a long way to setting up first-time boat owners for an enjoyable and manageable experience on the water for years to come!
Pros and Cons of Boat Loans
As with any financing decision, weigh the advantages and potential drawbacks:
Pros
- Extended repayment terms keep monthly payments lower
- Interest rates are lower than credit cards or personal loans
- Can purchase a more expensive, better-equipped boat than paying cash allows
- Builds your credit history by making on-time payments
Cons
- Pay interest on a depreciating asset
- Miss out on investment gains on down payment money
- Loan collateral means you can lose the boat if you default
- Long terms mean paying interest over decades
- Prepayment penalties may apply on some loans
For major boat purchases, financing is usually necessary for most buyers. Just be cautious when borrowing to still live within your means and pay off the boat before interest costs become exorbitant.
Is a Boat Loan Right for Me?
As you weigh financing options, ask yourself:
- How much can I comfortably afford to budget for a boat loan payment each month?
- Will boat financing jeopardize my other financial goals like saving for retirement or college?
- How frequently will I realistically use the boat to justify the cost?
- Do I have strong enough credit and income to qualify for reasonable loan terms?
- Am I prepared for higher insurance, storage, maintenance, and other boat ownership costs?
- Can I make lifestyle adjustments elsewhere if needed to free up money for boat payments?
- Will boat ownership fit my needs long-term, or will an upgrade temptation emerge in a few years?
- Do I have savings set aside for repair costs and other unexpected boat expenses?
Unless you can pay cash, boat loans provide access to purchasing your dream boat for those with good credit and financial foundations in place. But being realistic about budget constraints will help set reasonable expectations.
READ ALSO: The Complete Guide to Personal Loans
Boat Loan Mistakes to Avoid
When applying for and financing a boat, sidestep these common mistakes:
- Not checking your credit reports and scores before applying
- Assuming your income alone meets eligibility requirements
- Focusing only on the monthly payment, not the total loan costs
- Taking the maximum loan term to lower payments, extending interest payments
- Overlooking loan fees beyond just the interest rate
- Paying boat loan closing costs out of pocket instead of financing them
- Accepting the first loan you’re offered without shopping competitor rates
- Skipping inspections on used boats before purchase
- Not getting proper insurance coverage on your new boat asset
- Applying for other loans during the underwriting period before closing
- Neglecting to budget for maintenance, storage, taxes, and other boat ownership costs
Avoiding these pitfalls ensures your boat loan works for you, not against you!
To Recap
We hope this detailed boat loan guide provided you all the details needed to make smart financing decisions for your boat purchase. The key is securing favorable loan terms for your budget and financial situation by comparing multiple lender options, maintaining a strong credit profile, and only borrowing what is needed.
By understanding the costs, applying proper research, asking lenders the right questions, and avoiding mistakes – you can cruise into boat ownership confidently with a loan that floats your boat! Here’s to smooth sailing ahead.
Frequently Asked Questions About Boat Loans (FAQs)
What is the easiest boat loan to get approved for?
Secured boat loans are the easiest to get approved for since they are backed by the boat as collateral. Lenders view them as lower risk. Easiest options include a loan through your existing bank where you have a relationship or financing from the boat dealer.
Can I get a boat loan with bad credit?
Those with credit scores below 600 will have a hard time qualifying from traditional lenders. But subprime lenders may offer loans with very high interest rates. Another option is a secured loan using other valuables as collateral or getting a co-signer with better credit.
How much down payment is required for a boat loan?
Most lenders want a minimum down payment of 10-20% of the boat’s purchase price. But a larger down payment of at least 20% is ideal to get approved for the best terms and lowest interest rate.
How long do boat loans last?
Typical boat loan repayment term lengths range from 10 years up to 30 years for larger, more expensive boats. A 15-20 year term is most common for affordability without over-extending payments decades into the future.
Can I get a boat loan without proof of income?
Lenders generally require documented proof of income, tax returns, and paystubs to verify your ability to manage repayment. Stated income loans without documentation do exist but come with much higher interest rates due to the increased risk.
Is interest on a boat loan tax deductible?
No, you cannot deduct interest paid on a boat loan on your taxes like you can with mortgage interest on a primary home or second home. Boat loan interest is not considered a tax deductible expense.
Can I pay off my boat loan early?
Most lenders do allow early payoff without penalty. But some apply prepayment penalties if you pay off the loan within the first 2-3 years of the loan term, so read the fine print first. Paying off early saves you money on interest.
How old of a boat can you finance?
Lenders are hesitant to finance boats older than 20 years due to higher risk of existing issues and less remaining useful life. But some specialized lenders will consider boats up to 30-40 years old on a case by case basis if condition warrants it.
What credit score is needed to buy a boat?
To qualify for the lowest rates, you’ll need a minimum credit score of around 720 at most lenders. But scores as low as the mid 600s may be approved with higher rates. If below 600, you’ll have a very hard time securing a traditional boat loan.
Can I trade in my old boat toward a new one?
Yes, many dealers will accept your current boat as a trade-in credit toward another boat purchase, either new or used. The value will be based on assessing your boat’s age, condition, features, and demand for that model. Trading in can help lower your loan amount.
In another related article, How to Calculate APR on a Car Loan
