If your dream of owning a boat seems financially out of reach, you may be considering a boat loan. In 2022, a boat can cost anywhere from $10,000 for a smaller used boat to hundreds of thousands of dollars. Considering that the average income of an American before taxes was about $84,000 per year in 2020, there may not be much room in your budget

A boat loan can help make your dream boat purchase a reality, but you need to have all your ducks in a row to qualify for one. Applying for a boat loan requires you to be organized and show financial stability.

Types of boat loans

When shopping for a boat loan, consider the different types of loans available. Most lenders will have both secured boat loans and unsecured boat loan options available.

Secured boat loans

A secured loan is a loan that is backed by collateral. The item used as collateral can be repossessed by the lender if you miss payments or make late payments on the loan. Examples of collateral include a house or a vehicle. In the case of a boat loan, the boat itself can be used as collateral.

Unsecured boat loans

Unsecured loans don’t require any collateral. However, this means they typically have higher interest rates and less favorable terms for borrowers. The benefit of unsecured loans is that you don’t risk any collateral being seized if you make a late payment. An unsecured loan could be a personal loan from a bank or online lender or a peer-to-peer loan.

How qualification changes across lenders

There are a lot of lenders out there with various loan offerings. Each lender and loan type requires a specific set of qualifying factors to lend you money. The type of loan you pick and the lender who administers it will determine everything you need to qualify for the loan.

For example, LendingClub, a peer-to-peer lender requires that you are 18 years of age, have an existing U.S. bank account and have a good credit history to qualify for one of their personal loans. On the other hand, applicants must know which boat they plan to purchase, among other common loan requirements, to qualify for a boat loan through U.S. Bank.

How to qualify for a boat loan

Applying for a loan of any type requires you to meet certain qualifications. Lenders want to ensure that you will repay your loan within the agreed-upon period. Lenders need to be certain that the collateral is worth what you say it is worth if it’s a secured loan.

Prequalification allows you to give a lender your basic info before officially applying for a loan to find out if you will qualify for one. It’s not a guarantee that you will be approved for a loan, but it can help you determine if you are missing any loan requirements before applying.

To apply for a loan, lenders will need to see that you meet their requirements and you need to provide the documentation to prove it. These are the most common requirements when applying for a boat loan.

U.S. citizenship or valid visa

Any U.S. lender wants to see that you are a U.S. citizen or a legal permanent resident. You will need to provide verification of this with some form of identification. Commonly accepted identification types include:

  • Birth certificate
  • Certificate of citizenship
  • Driver’s license
  • Military ID
  • Passport
  • Social Security card
  • State-issued ID

Working bank account

While it’s not impossible to get a loan without a bank account, most lenders will require you to have a bank account in order to apply for a loan. Your bank account and bank statement serve as a way to verify your income and spending history. Your lender can also deposit funds right into your bank account when they approve you for a loan.

Good credit score

Lenders typically view a FICO credit score of 680 or higher as good, but credit score requirements can vary from lender to lender. They also want to see that you don’t have any major credit issues in the past three to five years, such as trouble making loan payments, bankruptcy or foreclosure.

If you’re unsure of your credit score, you can pay any major credit bureau for your credit report. You may be able to find out your credit score for free if you have a credit card where this service is an included benefit. Experian also offers an option for free credit monitoring if you sign up for their emails.

Consistent work history

When you apply for a loan, lenders want to see that you have reliable employment. This gives them assurance that you will be able to make payments on your loan. You must submit income verification such as a tax return or recent pay stubs to show that you are employed.

Sufficient income

Your tax returns and pay stubs also serve as a way for lenders to see your total income. They consider all types of income to calculate your total income and determine how much money they will lend you. This includes your employable income, as well as government benefits, child support and alimony.

Required debt-to-income ratio

The debt-to-income ratio (DTI) compares your monthly income to recurring payments. You can calculate DTI by adding up all your monthly payments and dividing them by your total monthly income, or you can use a DTI calculator. Lenders typically see 36% or lower as a favorable DTI. However, some lenders will give you a loan even if you have a higher DTI percentage.

Marine survey report

When lenders give you money for a boat, they want to make sure that they know the boat’s value. A boat loan often requires a marine survey report which assesses the boat’s value (much like an appraisal report gives the value of a home).

Bottom line

Purchasing a boat means more fun is in your future, but boats cost a lot of money. Applying for a boat loan can give you the financial help you need to fund your marine dreams. Before applying for a loan, take inventory of your finances to ensure you qualify. You’ll also want to talk to multiple lenders to find the best terms and rates for a boat loan.