Many people dream of owning a boat. However, making this wish come true can be expensive. The good news is that financing a boat is an option for people who can’t afford to buy one outright. Furthermore, the process of purchasing a boat and securing financing isn’t as complicated as one might think.
Like cars, boats have a predetermined loan amount and a set repayment period. To help you understand how all this work, we’ve compiled this guide which will discuss the financing options, terms and considerations, repayment, and the buying process. Let’s jump straight into it.
Types of Boat Loans
There are several loan types that you could use to buy a boat. Explore any of these options to see what works best for your particular situation.
Secured Loans
Secured loans are backed by collateral. If you fail to repay it, the creditor has the right to repossess your collateral. Many states allow lenders to seize a car if a borrower defaults on their obligation.
Likewise, the collateral for a secured loan is the boat itself, which the lender can repossess if you fail to make your payments. According to Chesapeake Financial, a secured loan may have lower interest rates and longer terms, but all of this is based on your credit score, down payment, and the terms you select.
Unsecured Loans
An unsecured loan doesn’t require any collateral. However, lenders consider these riskier and impose higher interest rates than they would for a secured loan.
Nevertheless, an unsecured loan may offer more flexibility in terms of repayment than a secured loan. With unsecured loans, you’ll need solid finances and a strong credit score to get the best deal.
Second Mortgage or Home Equity Loan
You may want to consider a second mortgage like a home equity loan as a way to finance a boat purchase. In this situation, your house would serve as the collateral. However, home equity loans are known to have an especially high risk. The lender could foreclose your home if you cannot keep up with repayments.
Boat Loan Terms
Even though the process of financing a boat is quite similar to those of other significant investments such as a car or house, many people are curious about how long they will have to pay it off. A typical boat loan lasts between 15 and 20 years. However, there are some with terms as short as four years.
You’ll need a fairly high credit score to secure a boat loan — usually, 700 or better. If a lender does accept a lower score, a higher interest rate or a greater down payment may be required. Unsecured loans are ideal for those with excellent credit but typically have shorter repayment periods.
Payment Considerations
For the most part, getting a boat is comparable to getting a car. You can request a financed amount, less any down payment, and a repayment period.
Boat lenders typically want a down payment ranging anywhere from 10% to 20%. The actual amount can vary depending on the creditor and the boat’s price.
Then, when it comes to interest, the shorter the payment term, the lower the rate. As the interest rate decreases, the principal amount increases.
Where to Get a Boat Loan
You can finance a boat through a variety of institutions:
- Dealership financing: Getting financing from your dealer is usually the quickest and easiest way to get financed. Loan coordination is something that dealers do daily, and they are quite familiar with the process. Additionally, the dealers can benefit from ensuring that the transaction goes as smoothly, quickly, and painlessly as possible.
- Online lenders: If you’d rather do your banking online, consider using an online lender. You can look into several online lenders at the same time to check your eligibility.
- Banks: Boat financing options may be available through your bank, whether it’s a large national institution or a small local one.
The Boat Buying Process
Before you go ahead and buy your boat, you should first make sure your finances are in order. Applying for boat financing is easy if you follow these guidelines.
- Check your credit score with the three national bureaus: Use every available resource to ensure that your credit score is high enough to qualify. Pay attention to your online bank or credit card account and check other websites that provide free credit reports from the three national bureaus. It’s best to check your credit score early to avoid unpleasant shocks and fix any inaccuracies.
- Calculate the down payment amount you can afford: Keep in mind that most lenders will require at least 10%. By examining your spending habits, you can determine how much you can afford to pay for a boat. Your down payment determines the type of financing you can secure, the interest rate you will pay, and the total cost.
- Determine the amount you can allocate toward monthly payments: The interest rate is one of the essential aspects of deciding your budget. Make sure you determine how much your interest rate will affect the total cost.
- Compare loan offers: This is a critical step because you may want just to complete the process. It’s always best to shop around for loans. Shop three to four and compare what they offer before making a decision. This will help you get the best deal.
- Get pre-approval from the lender you choose: Prequalify at a bank or online lender to evaluate what works best for your budget to save you from disappointment.
- Determine if you want to add any accessories to your financed amount: You’ll have the option to include additional expenditures like trailers, electronics, warranties, and other accessories to your financing. Consider the total package before making a final decision.
- Determine your loan details: Make sure you know how much you’ll owe and how long you’ll have to pay it.
- Close the deal: Sign the dotted line and enjoy your boat.
Closing Thoughts
Purchasing a boat may be a lifelong ambition for many people. It sounds appealing to be able to leave whenever you choose and sail the waters with the wind and the waves for company. The good news is that this can be more than just a fantasy. If you don’t have enough money, then financing can help you get out on the water sooner than you think.
