How boat loans work: Types, terms, where to borrow and more

A boat loan is a type of financing used to purchase a boat or another marine craft. Like auto loans and personal loans, these installment loans usually come with fixed interest rates and monthly payments and a set repayment term.

Boats can be expensive, with the cost for a new small runabout falling anywhere from $10,000 to $75,000 or more. Financial institutions from banks to online lenders and even marine-specific dealerships offer loans to spread that cost out over a term you can afford.

What are boat loans?

Boat loans are installment loans for purchasing boats or other marine craft. Your funds are sent in a lump sum and typically repaid in fixed payment terms ranging between two to 15 years.

Dealerships, credit unions and banks usually offer secured boat loans that require you to use the boat for collateral. If you can’t repay a secured loan, the lender can seize your boat. Unsecured personal loans can also be used to buy a boat if you can afford the higher rates and payments that usually accompany them.

Types of boat loans

Lenders that offer boat financing will generally give you secured and unsecured loan choices. While they all function similarly and are used for the same purpose, the details and eligibility requirements are different.

Secured loans

Secured boat loan terms may be as long as 15 years, giving you a much lower payment than the seven-year maximum that usually come with unsecured personal loans. You may also have a better chance of getting approved for a secured loan if you have bad credit since the lender can repossess the boat if you default.

However, if you’re buying an old used boat, you may be out of luck if the vessel doesn’t meet the lender’s secured loan requirements. You may also encounter variable-rate loans or balloon payments. The low introductory rates usually only last a short time before going up, and balloon payments require you to pay the entire balance off after a set period that could be as short as three years.

Types of secured boat loans

• Secured personal loans: Some lenders offer secured personal loans. You may be able to borrow more than you’d qualify for without using the boat as collateral.
• Secured marine loans: Certain marine dealerships may also provide in-house or third-party loans that allow you to finance extra equipment, extended service plans and insurance coverage. Don’t fall for high-pressure sales pitches — your experience may be similar to getting an auto loan from a dealership.
• Home equity loan: Instead of securing the loan with the boat, a home equity loan secures the loan with your house. It lets you borrow up to a certain percentage of your home’s equity — typically around 80 percent. Just be careful: If you can’t repay the loan, you could lose your home in a foreclosure.

Unsecured loans

Unsecured loans are offered by almost every lender or financial institution. You’ll be capped at lower loan amounts and shorter terms than secured loan options, making it a better option for older and cheaper used boat purchases.

You’ll see a bigger difference between minimum and maximum rates with unsecured loans, making it a good idea to prequalify with multiple lenders so you get the most competitive rates.

Unsecured personal loans can be used for just about any purpose, making them more common than secured ones. The lender’s approval conditions or website should tell you if they have any rules against using your funds to buy a boat.

How do boat loans work?

A boat loan — regardless of the type — works like other installment loans. You receive all of your funds at once, and the balance is paid off over a set period in monthly installments.

Secured boat loan lenders qualify you based mainly on your credit, income and the type of boat you’re buying. Lenders consider secured boat loans less risky and may offer lower rates since they can take your boat back if you don’t repay it.

You can’t usually borrow more than the price of a boat, since the loan used the boat as collateral. Some lenders even require 10 to 20 percent down payment, depending on how much you’re borrowing.

Unsecured personal loan lenders focus on your credit and income for qualifying, but don’t require information about the vessel you’re purchasing. Because your boat isn’t used as collateral, no down payment is required. You can borrow more than the boat costs to cover boat-related costs like maintenance, fuel, marina fees or upgrades.

Pros and cons of financing a boat

Whether you’re looking to cruise around the ocean in a luxury yacht or have been dreaming of Saturdays on the lake with your family, there are factors to consider before applying.

Pros

• Breaks up the payment into smaller, more manageable installments.
• Depending on the lender, the funds may be used for boating-related expenses as well.
• Rates are low for those with a good credit score.
• Payments can be low with a long term.

Cons

• May be hard to get approved for.
• If the loan is secured, you’re at risk for losing your collateral should you stop making your monthly payments.
• High interest rates could lead to paying off more than you originally borrowed.
• Stretching out a loan term means paying more interest over the life of the loan.