Setting sail on your very own boat is a priceless experience. But unless you’ve saved a boatload of cash, you’ll need a loan to make your dreams a reality. Here’s what you should know about personal loans for boat purchases, where to find boat loans, how to determine the costs and what to consider before applying for financing.
What is a boat loan?
A boat loan is very similar to an auto loan. 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. Don’t be surprised if the lender asks to see a detailed account of your personal finances — they want to make sure they’re giving a loan to someone who can pay it back.
The application process is typically fast, and approval is largely based on your credit score and ability to repay. 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.
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 loans usually fall into: secured and unsecured.
Both of these options for financing a boat with a loan have pros and cons, and some borrowers may only qualify for secured loans. 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 means that the money being lent is backed by collateral — something of value that can be used to recoup the cost of the loan if the borrower fails to make the payments. Homes, vehicles and other valuable items are commonly used as collateral. The new boat itself could also be considered collateral for a secured boat loan.
Secured loans offer borrowers two main advantages. They usually feature lower interest rates than unsecured loans because the lender is taking on a lower risk due to the collateral. Secured loans are also accessible to borrowers who may not have the best credit history. Even those with faulty credit might be able to qualify for secured loans after doing a little homework on available lenders in the area.
Unsecured boat loans
An unsecured loan doesn’t require collateral, but that doesn’t mean it comes without strings attached. Unsecured loans usually have higher interest rates and more restrictions than secured loans. The application process is also more difficult for unsecured loans.
Many people decide to go the route of personal loans when looking into boat financing options. Personal loans are unsecured loans that can offer better rates than traditional funding sources.
Financing your boat with a personal loan
Personal loans typically have very competitive interest rates and flexible repayment terms. If you have a good credit score and sufficient income, a personal loan may be a great fit for you. You can also make extra payments that go 100 percent toward the principal — or pay the entire loan off early.
A personal loan is unsecured, meaning your boat or another asset won’t be used as collateral. An unsecured loan is entirely based on your creditworthiness and verifiable income.
Once your loan request is approved and funded, you receive the entire amount in your bank account. You then can negotiate with the boat dealer or private party like a cash buyer.
What to consider before getting a boat loan
Although there are a few choices for budget boats, most of them cost well into the thousands, and anyone in the market for a luxury boat can expect the price tag to be far higher than what most families have on hand for recreational expenses.
Once you have your sights set on the boat of your dreams and are ready to look at financing the purchase, take a moment to consider all factors that could affect your final decision.
Remember that the price tag is just one of the expenses attached to owning a boat. Maintenance and insurance can quickly turn into big-ticket items. And if you plan on keeping the boat at a marina, expect to pay monthly rent for a storage area, as well as administrative fees.
Anyone preparing to take out a loan should also take an honest look at their personal finances and future earnings. Once the contract is signed, the money must be paid back. Be sure to look closely at the fine print.
Where to get a boat loan
You can get loans for boat purchases from banks, credit unions, online lenders and other lending institutions. Asking your personal bank for financing options is a good place to start. Having a positive, preestablished relationship with a bank can go a long way toward getting you approved with a good rate.
Many boat dealers now offer financing options of their own. However, this isn’t always the case, and any financing that is available from a boat dealer should be checked against rates offered by other lenders.
Researching online marketplace lenders can be another cost-effective method for financing a boat. When other loan companies can’t provide the right option, an online lender could be the ticket to cruising the lake in a new family boat.
The bottom line
If getting out on the open water has been a lifelong goal, there are many boat loan financing options available. Depending on your credit and income, you can find secured or unsecured boat loans that fit your needs and budget.
Before jumping in, consider that most financial experts don’t recommend personal loans for discretionary purposes, especially if you already carry credit card or other debt. If you take a personal loan or a boat loan, have a plan to pay it off. Use our boat loan calculator to see how much your monthly payment might be.