What is a boat loan?

A boat loan is similar to an auto loan. In this case, a boat loan gives you the money to purchase a boat. This can be anywhere from a small boat to a more luxury craft, depending on your financial situation and desires. 

Some lenders offer loans specifically for boats, but most will offer personal loans that can be used to finance boats and related costs. Looking for an online boat loan from a personal loan lender can give you more options to find the least expensive option for you. 

Most lenders will ask the borrower to fill out a loan application, which can be fairly thorough. Lenders will also likely ask for information like tax returns and proof of assets. It's likely that you'll need to provide a detailed account of your personal finances during the application process.

The application process is typically fast and approval is largely based on your credit score and income. Though banks typically require 10 percent to 20 percent down for the purchase of a boat, you may be able to finance 100 percent of the cost.

5 factors to look for when choosing the best boat loan lender

What makes a lender 'best' for one borrower will be different for another. However, you can sift through the options by considering these 5 factors.

1. Usage requirements. Some lenders restrict what you can use the loan on. Read the terms and conditions thoroughly to make sure the lender allows you to use the loan for your intended boat-related expenses. 
2. Used boat restrictions. Some lenders or institutions may be hesitant when it comes to financing an older, pre-owned boat because some may interpret this as a potential risk factor. If you're financing an older boat, don't be surprised if your lender requires you to conduct a full inspection of the vessel to ensure it's in good condition before getting approved. 
3. Member benefits. While you may be tempted to turn to a marina-specific lender for financing your boat, banks, lenders and credit unions often offer benefits to pre-existing members or borrowers. Some potential perks include interest rate autopay discounts, extended grace periods or payment relief options that aren't offered by online lenders. Plus, the application process will likely be more simple than with another institution because your information will already be in the system.  
4. Rates and terms. The key to finding the best loan for you is to know the interest rates you could qualify for before applying. Your credit score largely determines the APR you'll be offered and many lenders offer prequalification, which allows you to check your predicted rate before applying. Prequalify for at least two lenders to get an idea of what a competitive interest rate could look like for you. Also consider the repayment terms from each lender and what your payment needs are to make sure the loan won't hurt your finances down the road.
5. Fees. Carefully read the terms and conditions to see what fees each lender you're considering charges. Some waive every fee while others charge application, prepayment and origination fees, to name a few. These fees can add up quickly and significantly detract from the overall value of the loan, so make sure to search every fee charged and consider how it could impact your balance.

How boat loans work

Banks and other lenders have tailored their products to fit nearly every budget and lifestyle. However, there are two main categories that boat loans usually fall into: secured and unsecured.

Both of these options have pros and cons, but the loans and rates available to you will depend on the lending institution and your financial history. It’s important to understand the difference between the two types of loans before signing up for any financing.

Secured boat loans

A secured loan is geared toward lower-credit borrowers and is backed by collateral (property, a vehicle or a value item that's used to recoup the loan value if the loan payments aren't made). In the case of a secured boat loan, the boat itself could serve as collateral. 

Due to the collateral provided by the borrower, secured loans usually feature lower interest rates than unsecured loans and are accessible to borrowers with a low score or thin credit history. Secured loans are also accessible to borrowers who may not have the best credit history, as lenders aren't as stringent with secured loan requirements. 

Unsecured boat loans

An unsecured loan doesn’t require collateral, and generally comes with higher interest rates and more restrictions than secured loans. 

Unsecured personal loans are a common boat financing option, as they generally come with better rates and have benefits, like repayment flexibility.

Where to get a boat loan

While there are multiple companies that offer boat loans, your loan details and offer will differ based on the lender or institution's qualifications. Make it a priority to research every one of the options listed below to make sure you're getting the best loan with the most competitive rate for you.

• Through an online personal loan lender
• Your credit union (or one in your area if you qualify for membership) 
• A traditional bank, whether it be online or in-person at a brick-and-mortar location
• Through a marine-specific financing company or dealer

How to compare boat loan lenders

Comparing lenders is the most important step in the process of finding the best loan for your credit situation. Here are three steps to take before applying to ensure you're not putting your finances at risk in the long-term: 

1. Prequalify for as many lenders as possible to see your predicted eligibility odds and potential rates without impacting your credit. 

2. Compare the predicted offers to find the lender that offers the most competitive rates and terms. 

3. Research the discounts and member benefits of the remaining lenders to find the one that best meets all of your financial needs.

Pros and cons of getting a boat loan

What to consider before getting a boat loan 

When it comes to purchasing a boat, financing is a necessity for most borrowers. Before signing on the dotted line, it's best to know the ins-and-outs of the process so you know what to expect and what to look out for. Here are the 5 most important factors to consider before submitting your application. 

• Your credit score: Since most lenders use credit score to determine eligibility and rates, the higher your score, the more cheap your loan will be in the long run. 
• Your budget: Before setting your sights on one specific lender, make sure your predicted monthly payment will fit comfortably into your budget or see if your budget is malleable enough to handle another (potentially large) payment. 
• The type of loan you'll need: Secured loans are better for those with lower credit and are willing to put their boat — or another asset — up as collateral. Unsecured loans are best for those in good financial health who qualify for the lower end of the interest rate ranges.
• The total cost involved with owning a boat: There are multiple factors that go into owning a boat, from insurance (which is roughly 1.5 percent of the insured value), fuel costs, dockage and storage fees, taxes and registration costs involved with boat ownership. Make sure to factor in every cost to ensure you can afford the long-term costs as well as the sticker-price of the vessel. 
• How often you'll use the boat: If you don't live near a body of water or expect the boat to be docked for most of the year, then it may be worth it to think about renting for occasional usage, rather than spend six-figures on having to manage another payment on a boat.