Research boat financing and boat loans, and you’ll discover that financing a boat is faster and easier to attain than many people think. In most cases, securing boat financing usually isn’t very different from financing a new car. However, before you submit a boat loan application, there are a few steps you’ll need to take first. To start, you should select the type of boat you’d like to purchase. Then, estimate how much a monthly boat loan payment will cost and determine if you can afford it. We make this easy through our Boat Loan Calculator tool. Once you’ve determined the exact model you want to buy and know the purchase price, you’ll have to choose a lender. There are many great options for boat financing providers, but doing your research first is crucial. In this post, we’ll review boat financing basics, so you can secure funding and purchase the boat of your dreams!
Owning a boat can be an incredibly rewarding experience. Time spent out on the open water fishing waterskiing, or just relaxing in the sun is good for the soul. However boats can also be quite expensive. With prices ranging from $10,000 for a small fishing boat to over $1 million for a luxury yacht, paying cash upfront is not realistic for most buyers. This is where boat loans come in.
A boat loan is a type of installment loan used specifically to finance the purchase of a new or used boat. With a boat loan, you can spread out the cost over an extended repayment period to make owning your dream boat more affordable. But how exactly does a boat loan work?
In this comprehensive guide, we’ll explain everything you need to know about boat loans including:
- What is a boat loan?
- How boat loans work
- Boat loan terms, rates, and fees
- Types of boat loans
- Boat loan lenders
- Qualifying for a boat loan
- Boat loan application process
Let’s dive in and breakdown the boat financing process from start to finish!
What is a Boat Loan?
A boat loan is a loan issued by a lender like a bank credit union or specialty boat lender that allows you to finance the purchase of a boat. It works similarly to an auto loan or mortgage, allowing you to pay off the boat over an extended time period through fixed monthly payments rather than paying the full price upfront.
With a boat loan, you’ll receive the loan amount in a lump sum to pay the boat dealer. Then you’ll repay the loan plus interest in monthly installments over the loan term until it’s paid off. Boat loans are usually secured loans, meaning the boat itself serves as collateral for the loan.
How Do Boat Loans Work?
Now that you know what a boat loan is, let’s look at how the boat financing process works from start to finish.
Loan Amount
- The loan amount will be based on the boat’s purchase price minus any down payment you make. Loan amounts can range from as little as $10,000 up to $1 million or more.
Down Payment
- Many lenders require 10-20% down for a boat loan. The higher your credit, the lower the down payment may be. Putting more money down reduces the amount you have to finance.
Loan Term
- Boat loan terms are generally 10 to 20 years. Longer terms yield lower monthly payments but higher interest costs over the life of the loan.
Interest Rate
- Boat loan rates are usually fixed around 5-10% APR based on your creditworthiness. Rates are generally higher than auto loans but lower than unsecured loans.
Monthly Payments
- Your monthly payments will be fixed based on the loan amount, rate, and term. Payments go toward principal and interest costs. You’ll pay more interest with longer loan terms.
Disbursement of Funds
- Once approved, the lender will wire your loan amount directly to the boat dealer. You’ll take possession of the boat once the transaction is complete.
Boat Loan Terms, Rates, and Fees
When taking out a boat loan, here are some key terms, rates, and fees to be aware of:
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Interest rates – Fixed rates of 5-10% APR are common for boat loans. Rates vary based on your credit score, loan term, and other factors.
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Loan terms – Typical terms range from 10-20 years. Shorter terms have higher monthly payments but lower interest costs.
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Minimum/maximum loan amounts – Most lenders require minimums of $10,000-$15,000. Maximum amounts can reach $1 million or more.
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Down payments – Expect to put 10-20% down. Higher down payments help you get better rates.
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Closing costs – Closing costs range from 2-5% of the loan amount. These fees cover appraisal, application, title, and document filing.
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Prepayment penalties – Most boat loans let you pay off the balance early with no prepayment penalty. Double check with your lender.
Be sure to compare loan offers from multiple lenders to find the best rates and terms for your boat purchase. Ask lenders to provide a complete cost breakdown before committing.
Types of Boat Loans
When it comes to boat financing, you primarily have two options: secured boat loans and unsecured personal loans. Here’s an overview:
Secured Boat Loans
A secured boat loan uses the boat itself as collateral for the loan. Popular types include:
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New boat loans – Financing for brand new boat purchases from a dealer. Tend to have lower rates.
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Used boat loans – Financing for pre-owned boats. Rates are based on the boat’s age and condition.
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Refinance loans – Take out a new loan at lower rates to pay off your existing boat loan and reduce costs.
Since your boat secures the loan, secured loans offer better rates and terms. But if you default, the lender can repossess your boat.
Unsecured Personal Loans
These loans don’t use the boat as collateral. Lenders assess your creditworthiness to decide loan approval and terms. Rates tend to be higher with shorter repayment periods. But you have flexibility to shop for used boats from private sellers.
Boat Loan Lenders
You have options when it comes to finding a lender for your boat financing:
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Banks – Large national banks like Chase and Bank of America offer boat loans and competitive rates for qualified borrowers.
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Credit unions – Local credit unions provide boat financing and may offer better rates for members.
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Specialty lenders – Companies like Progressive Funding and Sun Trust specialize in boat loans. They provide loan expertise but may charge higher rates.
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Boat dealers – Financing right at the dealership can be convenient but may carry higher costs. Compare dealer financing vs. securing your own boat loan separately.
Shopping around multiple lenders can help you compare boat loan rates and fees to find the most affordable financing option.
Qualifying for a Boat Loan
Boat lenders will assess several factors when determining if you qualify for financing and at what terms. These include:
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Credit score – Most lenders require minimum credit scores of 660-720. Higher scores qualify for lower rates.
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Income/debt – Your debt-to-income ratio should be 43% or lower. Lenders want to see you can afford payments.
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Down payment – The more you put down, the better. Some lenders allow 0% down but a 20% down payment is ideal.
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Loan amount – Loan amounts in the $25k-$50k range have the highest approval odds. Jumbo loans over $100k face more scrutiny.
Having an existing relationship with the lender, like a checking account, can also help improve your chances of approval.
Boat Loan Application Process
Here are the usual steps to apply for and obtain a boat loan:
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Compare lenders – Research multiple banks, credit unions, specialty lenders. Compare rate and fee offers.
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Check rates – Many lenders let you check estimated boat loan rates online without impacting your credit score.
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Submit application – Provide personal, employment, and financial details including income, debts, assets, downpayment funds, and the boat purchase price.
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Get approved – If approved, the lender issues a loan offer detailing rate, term, fees, and loan amount.
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Accept loan terms – Review the offer thoroughly and sign acceptance documents if you want to move forward.
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Close on the loan – Finalize paperwork, pay closing fees, the lender disburses payment to dealer, and you get the boat!
The entire boat loan application and approval process usually takes 1-2 weeks. With preparation and rate shopping, you can secure the most affordable boat financing.
Tips for Getting the Best Boat Loan Rates
Follow these tips to help qualify for the lowest rates and smoothest approval process:
- Maintain a credit score over 720 if possible
- Put down 20% or more for the down payment
- Keep your debt-to-income ratio below 36%
- Apply with a co-signer if you have limited credit history
- Shop and compare loan offers from at least 3 lenders
- Ask lenders about “pre-approval” to secure a rate upfront
The higher your credit score and down payment, the better boat loan terms you can obtain.
Is a Boat Loan Right for You?
While a boat loan makes financing your boat purchase possible, there are some downsides to weigh:
Pros
- Pay off a boat over time instead of fully upfront
- Typically lower rates than credit cards or personal loans
- Allows you to buy a more expensive, higher-quality boat
Cons
- Interest costs increase the total amount paid over loan term
- Monthly payments become a long-term obligation
- Failure to repay results in the boat being repossessed
- Loan approval isn’t guaranteed, especially with poor credit
Carefully consider both the pros and cons. A boat loan can be extremely helpful but also introduces financial risk. Determine if taking on the loan aligns with your budget and financial goals.
Set Sail With Your Dream Boat Using a Boat Loan
Follow the tips provided to secure the most competitive loan terms for your situation. With the right boat loan from a reputable lender, you can cruise confidently into boat ownership without breaking the bank all at once. Smooth sailing ahead!
Frequently Asked Questions
What credit score do you need for a boat loan?
Most lenders require a minimum credit score between 660 and 720 for approval on a boat loan. Borrowers with scores of 760+ qualify for the best interest rates.
Can I get a boat loan with bad credit?
It is possible to get a boat loan with bad credit, but your options are more limited. Expect a higher interest rate and potentially a higher down payment requirement with poor credit.
How much down payment do you need for a boat loan?
A down payment of 20% is generally recommended for a boat loan, although some lenders accept as low as 10% down. The higher your down payment, the better rate you can obtain.
What interest rates are typical for boat loans?
Boat loan interest rates currently range between about 5-10% APR for borrowers with good credit. Rates are fixed rather than variable.
Can you get a 30 year boat loan?
While some lenders offer boat loan terms up to 20 years, 30-year financing is uncommon. A 20-year boat loan is generally the longest term available.
Boat Financing Providers: What Are Your Options?
To finance a boat, you can go in one of three directions:
- Arrange financing through your boat dealer.
- Get a loan from your bank.
- Take out a boat loan with a lender specializing in marine financing.
Most people work through their boat dealers since dealers have experience setting up boat loans. Plus, it’s in the dealers’ interest to ensure the process is smooth, fast, and painless. Still, other buyers will opt for financing the boat by taking out a home equity line, a second mortgage, or a personal loan from their bank. This can lead to a lower interest rate, but the downside to this option is that it can also add paperwork and make the transaction a bit more complex. However, it may be worth considering because you might also enjoy some tax benefits by structuring the deal this way. You may also find a great deal by working with a third-party lender that offers boat loans. Members of the National Marine Lenders Association focus on financing boats. They may be able to arrange a deal with lower down payments, faster decisions, longer financing terms, or lower monthly payments. If you’re still weighing your boat financing options, Our How to Get a Boat Loan guide has more information on securing a loan.
Typical Boat Financing Requirements
If you qualify for a car loan, you’ll probably be eligible for a boat loan. Marine lenders will take the same sorts of factors into account:
- Credit rating
- Debt to income ratio
- Job and homeownership stability
- Net worth
Again, when considering all these factors, a company specializing in boat loans generally acts the same as a company making loans on new cars. Take your credit score, for example. If it’s 700 or above, that box is a cinch to check. If it’s in the upper 600 range, you shouldn’t have a problem getting financing, but you may get charged extra on the interest rate. Scores lower than that can become problematic, so check your credit score first. As for the other factors, you may have to provide some information (such as a personal financial statement or employment verification).