Whether youre an avid fisher, enjoy water skiing or want to relax on the open water with your family and friends, youre glad that you bought a boat. One thing you might not be so thrilled about, though, is the loan you took out to afford to purchase the boat. Depending on your circumstances at the time of purchase, your boat loan might have a high interest rate. Alternatively, the monthly payments might not work with your current budget.
If your current loan isnt working for you, you can refinance a boat loan to get terms that are a better fit for your current financial situation. Learn more about how a new or used boat refinance works and the numerous benefits of doing it.
Buying a boat is an exciting experience. After months or even years of dreaming and saving, you finally take the plunge and finance your dream boat. However, after a few years, you may find that your current boat loan no longer suits your needs Perhaps interest rates have dropped and you want to take advantage of lower rates Or maybe your financial situation has changed and you need to adjust your monthly payments. This is when refinancing your boat loan starts to look attractive.
But can you actually refinance a boat loan? The short answer is yes Boat loans can be refinanced in much the same way as auto loans or mortgages Refinancing involves taking out a new loan to pay off your existing boat loan. The goal is usually to improve the terms – lower the interest rate, reduce monthly payments, or shorten the repayment timeline.
In this comprehensive guide, we’ll explain everything you need to know about refinancing boat loans.
Overview of Refinancing Boat Loans
Refinancing a boat loan means replacing your existing loan with a new one. The new lender pays off the old loan and becomes the lien holder on the boat title You then make monthly payments to the new lender
Some key things to know about refinancing boat loans:
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Interest rates – The main reason to refinance is to get a lower interest rate and reduce the total cost of financing your boat. Rates fluctuate over time, so it pays to check periodically.
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Loan terms – When you refinance, you can often adjust the loan repayment term. Shortening the term increases monthly payments but pays off the loan faster. Lengthening the term reduces payments but increases interest costs over time.
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Loan amounts – In most cases, refinancing is done for the remaining balance on the original loan. But it is possible to refinance for a higher amount and cash out some equity if the boat has increased in value.
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Co-signers – Refinancing in your name only can remove a co-signer from the original loan. This shifts full responsibility to you.
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Closing costs – As with any new loan, refinancing a boat incurs closing costs – usually 1% to 5% of the loan amount. These must be weighed against interest savings.
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Prepayment penalties – Check your current loan terms for any early repayment penalties. These can make refinancing costly, so avoid loans with prepayment penalties if possible.
When Does it Make Sense to Refinance a Boat Loan?
Refinancing is not always the best move. Doing so makes sense when:
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You can lower the interest rate significantly – For refinancing to be worthwhile, you need to get a meaningfully lower rate. As a guideline, aim for at least 2 percentage points lower. This threshold covers closing costs and provides ongoing savings.
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You struggle with current payments – If your budget has tightened, refinancing to a longer loan term can lower monthly payments and make the loan more affordable. Just be aware this increases total interest costs over the life of the loan.
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You want to remove a co-signer – Refinancing in only your name releases a co-signer from loan liability. This may be needed if you had a co-signer qualify initially but now meet requirements on your own.
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You desire more flexibility – Some boat loans have prepayment penalties that limit extra payments toward principal. Refinancing can switch you to a loan without those restrictions.
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You need cash from equity – If your boat has increased in value and you need access to cash, a refi loan for more than the current balance lets you tap into your equity.
On the other hand, refinancing often does not make sense when:
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Your loan already has a low rate – say 6% or less. The savings may not justify costs.
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The loan will be paid off very soon. Give focus to just paying it off.
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Closing costs are high relative to potential savings. Do the math carefully.
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Your credit score has dropped significantly since getting your current loan. You likely won’t qualify for a better rate.
How to Refinance a Boat Loan
Refinancing a boat loan follows a similar process as applying for a new purchase loan:
1. Review your credit report
Pull your credit reports from the three major bureaus and correct any errors. This ensures you have the optimal score to qualify for the best refi rate.
2. Gather key loan information
Have details on the original loan amount, current balance, monthly payments, interest rate, loan term, lender, and lien holder.
3. Shop for the best refinance rates
Compare interest rates and terms from multiple lenders. Apply with at least 2 to 3 lenders to find the best deal. Credit unions often have very competitive refi rates.
4. Submit your refinance application
Provide financial, income, and identification documents to your chosen lender. Allow 1 to 2 weeks for loan processing and approval.
5. Lock in the interest rate
Once approved, lock in the interest rate while the rest of the paperwork is completed. This protects you from any rate increases during the closing process.
6. Review the refi loan agreement
Scrutinize the loan terms, interest rate, fees, and closing costs. Only move forward once you fully understand the agreement.
7. Close on the new loan
Sign the final loan documents. The lender pays off your old loan and becomes the lien holder on the boat title.
8. Make payments on the refinance loan
Going forward, you make your monthly payments to the new lender. Congrats on the refi!
Alternatives to Refinancing Your Boat Loan
If refinancing your boat doesn’t make sense right now, here are a couple alternatives to consider:
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Recast the loan – Some lenders let you recast the loan by extending the repayment term to lower your monthly payments. This adjusts payments without doing a full refinance.
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Make extra payments – If allowed by your lender, paying extra each month is a simple way to pay off your loan faster without refinancing.
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Sell the boat – If boat ownership no longer fits your lifestyle or budget, selling the boat and paying off the loan may be your best option.
The Bottom Line
Refinancing a boat loan can achieve several benefits – lower interest rate, reduced payments, flexible terms, tapping equity, or removing a co-signer. But refinancing also comes with costs like fees and closing costs. Do the math carefully to ensure refinancing makes financial sense for your specific situation. With a little research, you can determine if refinancing your boat loan is the right move.
What Are the Benefits of Refinancing Your Boat Loan?
If refinancing seems like the best option for you and your boat, here are a few benefits of doing it:
- Saves you money each month: If you refinance and end up with a lower monthly payment, you can adjust your budget accordingly. You might set more money aside for savings each month or pay more towards loans that have higher interest rates. If youve been having trouble making ends meet, a lower monthly payment can give you more room to breathe.
- Lets you focus on other financial goals: Refinancing a boat loan can help you shift your financial priorities. For example, you might want to focus on building up your retirement fund. When you reduce your monthly boat payment, you have that option. Refinancing to consolidate your debts also helps you prioritize and shift your financial goals.
- Can help you get out of debt faster: Should you decide to change the term of your boat loan when you refinance, you have the option of speeding up the repayment process, meaning youll be on the path to being debt-free sooner.
What Are the Drawbacks of Refinancing Your Boat Loan?
While there are benefits of refinancing a boat loan, there are also some potential disadvantages to consider:
- Closing costs can be high: You need to pay certain fees when you take out a loan, including when you refinance. Usually, you pay closing costs when you finalize the loan, which means youll need to have the cash on hand to pay upfront. Depending on the situation, the closing costs can make it so that you dont save money when you refinance.
- You can pay more over time: Extending the term of your boat loan by refinancing can mean that you have more breathing room when it comes to monthly payments. But lowering your monthly payment and taking more time to pay usually means that you end up paying more in the long run. You can use a boat refinance calculator to get an idea of your new monthly payment and to see how it compares to your current loan.
- You can get in over your head: Going the cash-out refinance route can seem appealing, as it gives you cash to spend as you wish. But it is possible to borrow more than you can comfortably afford to repay. Alternatively, if your income situation changes, you might have trouble repaying the new, more expensive loan.
- It can interfere with your other financial goals: Depending on what you want from life, refinancing your boat loan might make it difficult to focus on your other financial goals. You might end up repaying your boat loan for longer than you had anticipated when you purchased the boat or you might find that the monthly payments make it challenging to save for other accomplishments, such as retirement, paying for your childrens education or buying a new home.
Since there are many potential benefits and drawbacks of refinancing, its a good idea to carefully weigh your options before you decide to move forward.
Boat Loans 101: Should You Finance A Boat?
FAQ
Is it possible to refinance a boat loan?
What is a typical boat loan interest rate?
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Best for…
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Starting APR
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Loan amounts
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Low APRs
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6.74%
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$10,000 – $9,900,000
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No fees
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6.99% (with autopay)
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$5,000 to $100,000
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Same-day credit approval
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6.99%
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$10,000 – $4,000,000
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Large boat loans
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7.49%
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Up to $25,000,000
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Are boat interest rates going down?
Can you take over a boat loan?
When should I refinance my Boat loan?
There’s no one size fits all answer to when you should refinance your boat loan. You may be happy with your current boat loan but if you feel like you could benefit from a lower monthly payment, a shorter or longer term, or a lower interest rate, then consider refinancing your current boat loan.
What is the average interest rate for a boat loan?
The average interest rate for a boat loan varies depending on the lender, the size of the loan, your credit score and income, and whether the loan is secured by the boat or unsecured.According to **USA
What happens if you refinance a boat loan?
With a refi, you could potentially lower your interest rate and/or reset your loan repayment term. Either of these options can reduce your monthly payment without penalty, and ensure that your boat still fits into your household budget. You can remove a co-borrower.
Where can I refinance a boat?
As the largest boating marketplace, Boat Trader offers an easy boat loan application process and competitive rates and terms. When you’re looking for the best refinancing offers, make sure that the new rates and terms will fit your specific refinancing goals before applying.