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How to finance a boat

Couple on a boat
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Buying a boat can be a fun investment, but it can also be cost prohibitive. Prices vary depending on the type of boat you are considering, but the average cost of a new boat is typically between $60,000 to $75,000. On top of the cost of the boat itself, you also need to consider insurance, maintenance and fuel costs. If you are considering buying a boat, but need help financing it, there are options available.

Taking out a boat loan could be a great way to finance your boat purchase without breaking the bank. There are several things to consider before choosing a boat loan lender, including loan terms, interest rates, and eligibility criteria. Your credit score will play a major role in determining the terms you qualify for.

What is a boat loan?

A boat loan is a type of personal installment loan offered by credit unions, banks and online lenders. When you take out a boat loan, you will begin making monthly fixed payments until the loan is repaid. The monthly payments will include a fixed interest rate and any fees the lender charges.

Lenders typically have a variety of repayment terms to choose from. The loan term and interest rate you are eligible for depends on your credit score, debt-to-income ratio, income, the size of the loan and whether you choose to take out a secured or unsecured loan.

Types of boat loans

If you want to finance your boat with a loan, you have a few options.

Secured loans

Secured loans require you to put up collateral to ensure the repayment of the loan. For a boat loan, you would put the boat up as collateral, meaning that the lender could repossess the boat if you stop making payments or default on the loan.

The advantage of secured loans is that they typically come with lower interest rates and higher lending limits since there is less risk for the lender. However, you risk losing your boat if you are unable to make the payments.

Unsecured loans

Unsecured loans do not require any collateral, meaning that you do not risk losing any physical possessions when you sign up for these loans. However, unsecured loans do have higher interest rates and lower borrowing limits, especially if you don’t have good credit. For borrowers with good to excellent credit, unsecured loans are a great option.

Where to get a boat loan

If you decide that taking out a loan to finance your boat is the way to go, you have a few different options. A variety of lenders offer boat loans, including traditional brick and mortar banks, credit unions and online lenders. Before choosing an individual lender, it is important to compare the top boat loan lenders and find the one that will work best to fit your needs.

Traditional banks

Many traditional banks offer loans. If you have a relationship with a bank that offers personal loans for boat financing, it may be a good idea to consider taking out a loan with that institution. It is often easier to qualify for the best rates if you have worked with a bank in the past, and some banks offer loyalty discounts for customers who have other accounts with them. Working with a bank may also be your best option if you prefer in-person service.

Credit unions

Credit unions, much like banks, typically include perks for pre-existing customers. Credit unions are typically local institutions that require membership to access their products. If you are a credit union member or plan to join one, you could benefit from lower interest rates and more relaxed credit requirements.

Online lenders

Online lenders allow borrowers to apply for and receive a loan entirely online. These lenders tend to have faster approval and funding processes than traditional institutions. If you prefer a fully online experience or need your funds quickly, looking for an online lender could be your best option.

What to consider before getting a boat loan

Before you apply for a boat loan, there are several things to consider. Once you decide on a boat and figure out how much money you need to borrow, you should check your credit score. Knowing your credit score will give you a better idea of what rates and loan amounts you may be eligible for with various lenders. The lowest advertised interest rate is never guaranteed. Make sure you have a good idea of what your interest rate will be before signing on with a lender, accounting for any fees the lender charges.

Lenders offer a variety of loan amount ranges and loan repayment ranges. That is why it is so important to know how much you need to borrow before researching lenders. Make sure to calculate things like maintenance fees and insurance into the total cost of your boat before deciding how much you need to borrow. Generally, larger loans are allowed longer repayment terms, but exact terms depend on the lender you choose.

It is crucial that you do your research and read the fine print before signing up for a loan.

How to apply for a boat loan

If you decide that taking out a boat loan is the right decision, you can follow these steps:

  1. Figure out how much you need to borrow. Owning a boat costs more than the price of the boat itself. You need to account for boating insurance, maintenance fees and other potential costs when calculating your expenses.
  2. Check your credit score. Knowing your credit score and having a good understanding of your financial picture will help you determine what loan terms you will be eligible for with individual lenders.
  3. Choose your loan type. Boat loans can be either secured or unsecured. Secured loans require collateral. In this case, the collateral would be the boat you are purchasing. If you do not want to run the risk of losing your boat, it may be a good idea to take out an unsecured loan.
  4. Research lenders. There are a variety of lenders to choose from. Make sure to look at the terms and rates each one offers, as well as any fees charged or additional benefits like autopay discounts and 7 days a week customer service.
  5. Choose a lender and apply. Once you have decided which lender you would like to work with, you can apply online or in person if the institution has branch locations. If you are deciding between lenders and want to see exactly what the terms will be, many lenders allow you to prequalify without hurting your credit score. This allows you to see exactly what you would be eligible for with that lender.
  6. Prepare necessary documents. During the application process, you will need to provide supporting documents such as pay stubs, W2s, proof of residence, driver’s license and other documents that illustrate your financial situation.

Alternatives to taking out a boat loan

If you don’t want to buy a boat with a personal loan, you may want to consider some other options.

Pay in cash

If you have enough money saved up and are in the financial position to do so, paying for your boat in cash could be a smart move. While taking out a loan allows you to build credit, paying in cash helps you avoid added fees and interest. It also means that your debt-to-income ratio and credit score will remain unchanged from the purchase.

Rent a boat

Buying a boat is a commitment that requires regular maintenance, insurance and other expenses. If you want the experience of driving a boat without the long-term commitment and added costs, you could consider renting a boat. This would allow you to get the experience without making any commitments.

Marine financing

Financing through the dealership you buy the boat from is likely the most convenient financing option. Working with the dealership’s financing office can cut down on time spent searching for loans. Sometimes dealerships offer special perks like rebates and manufacturer deals. However, financing through a dealership tends to be more expensive, with higher interest rates and longer repayment terms that require you to pay more in interest.

Bottom line

If you want to buy a boat and you are financially ready to take on the commitment, there are several different ways you can finance it. However, unless you are able to pay in cash, taking out a boat loan is likely your best option. Make sure to review top boat loan lenders carefully and get quotes from a few different lenders before deciding on one. It is also important to know exactly how much you will be paying each month, so try using our boat loan calculator before applying for your loan.

Written by
Raija Haughn
Raija Haughn is an associate writer for Bankrate.com specializing in personal and home equity loans. She is passionate about helping people make financial decisions that will benefit them long term.
Edited by
Loans Editor, Former Insurance Editor