Key takeaways

  • Borrowers across the credit spectrum can get approved for a boat loan. However, the lower your credit, the more likely you are to be offered high rates.
  • Depending on the lender, rates can range between 5.99 percent to 36 percent.
  • Repayment terms for boat loans typically range between one to 20 years, depending on your specific loan and marine craft.

Whether you’re into fishing, water skiing, sailing or whale watching, there’s no denying that owning a boat can be an exciting adventure. However, buying a boat requires a sizable investment. Used boats can set you back by as much as $20,000, while newer vessels can cost between $40,000 and $60,000, depending on the model.

Boat loans are a type of personal loan designed specifically for the purchase of a boat. These loans can lessen the financial impact of buying a boat by breaking up the total amount into more digestible monthly installments for a set number of years.

How do boat loans work?

Taking out a boat loan is similar to taking out an auto loan or another vehicle loan, such as an RV loan. You’ll have to find a lender that offers that kind of financing for the amount you’re looking for and go through a credit check. You’ll also have to provide all of your personal information in addition to the boat’s details.

If everything goes without a hitch, you’ll be approved for the loan, in which case, you’ll get a letter with the terms and interest rate you qualified for. Once you agree to the terms established by the lender, you’ll get the funds — typically within that same week — and will begin making monthly payments for a set number of years.

When shopping for boat loans, there are three key elements you need to pay attention to, as these will impact how much you’ll pay each month:

  • Terms: Repayment terms for boat loans range between one and 20 years, depending on the lender. The shorter your repayment term, the higher your monthly payment will be. Conversely, the longer your repayment term, the lower your monthly bill. However, the latter will result in more interest paid over the life of the loan.
  • Interest rate: Interest rates for boat loans are typically fixed, meaning they remain the same throughout the duration of the loan. To qualify for the lowest interest rates, you’ll need a strong credit score and solid financials. Interest rates for boat loans can range between 5.99 percent and 36 percent, depending on the lender.
  • Downpayment: Some lenders, particularly dealerships, require you to give a down payment on your boat loan. The amount will vary depending on the age of your boat, the loan amount and the repayment term, but it’s usually between 10 percent and 30 percent of the total amount.

Types of boat loans

There are a number of ways to finance a boat, depending on your financial situation and what you feel comfortable with.

Secured loans

Secured loans are those that require an asset to serve as collateral if you default on the loan. Because these types of loans represent a lower risk for lenders, they tend to have more favorable interest rates than unsecured loans and can be easier to qualify for.

Types of secured boat loans include:

  • Personal loans: These are available through banks, credit unions and online lenders. Secured personal loans offer repayment terms between two and seven years and can have interest rates as low as 3 percent, depending on the lender. You may be asked to put up a savings account to serve as collateral or the boat itself, so it’s something to keep in mind before applying for this type of loan.
  • Home equity loans: If you’ve owned your home for a number of years and have enough equity to take a second mortgage, you could take out a home equity loan to finance your boat. These loans currently have fixed interest rates between 6.24 percent and 10.28 percent, with repayment terms of up to 30 years. On the downside, borrowing against your equity can take a while to approve, plus your home would be at risk if you’re unable to make payments.

Unsecured loans

Unsecured loans don’t require you to put up an asset as collateral. These loans are issued based on credit and financial history. Because these loans are riskier for the lender, they tend to have higher interest rates than secured loans — even if you have excellent credit. Since there’s no collateral to seize, if you default on an unsecured loan, you could risk damaging your credit for up to seven years.

Types of unsecured boat loans include:

  • Personal loans: Just like secured personal loans, unsecured loans can be obtained through banks, credit unions and online lenders. However, because these are issued based on credit, you’ll need to find a lender that offers loans within your credit score range. Unsecured personal loans for boats have interest rates ranging from 6.99 percent to 36 percent, with terms of up to seven years.
  • Marine financing: These loans are issued by companies that specialize in boat loans. They can have fixed or variable rates, starting at about 6 percent, and offer repayment terms between five and 20 years. When it comes to marine financing, the biggest drawback is that you may be required a down payment to get approved for the loan, plus you may not be able to get financing for older vessels.

Financing a new vs. a used boat

The process of applying for a loan for both new and used boats is basically the same. That said, if you’re thinking about marine financing or a dealership loan, you may have a harder time financing a used model than a new one. Lenders typically have age and shape requirements to finance a used model, so if yours doesn’t make the cut, you won’t get approved for the loan.

Marine companies and dealerships also tend to charge higher interest rates to finance used boats than new ones. But even with a higher interest rate, buying a used model can still save you thousands of dollars down the line as they cost considerably less than a brand new boat. That said, if you’re thinking about buying used, then a personal loan or a home equity loan may be the better choice.

Choosing the right boat loan

To choose the best boat loan for your situation, you’ll need to take inventory of your credit score and overall financial health.

If your credit score needs a boost, then applying for a secured loan may be the best option, as you’ll be able to secure more favorable terms. You can also try applying for an unsecured loan with a co-signer to improve your odds of qualifying for an affordable loan. If you have good-to-excellent credit, then an unsecured loan might be the right fit for you.

Regardless of the type of loan you choose, the most important thing is to shop around for rates by prequalifying with multiple lenders. This will allow you to choose the offer that best fits your monthly budget and needs without hurting your credit.