Key takeaways

  • A boat loan gives you the ability to finance the cost of a boat over several years instead of paying for it all at once.
  • A secured boat loan may come with lower rates and longer repayment terms.
  • An unsecured personal loan may make financing an older used boat easier.
  • Online lenders, credit unions, traditional banks and specialty marine financing lenders may offer a variety of different boat financing options.

If your sights are set on buying a boat so you can set sail whenever you want, you may need to get a boat loan to make that dream a reality. Boats can be pricey, and if you don’t have the cash to purchase one, a boat loan can help you spread the cost out over several years. But the purchase price isn’t the only cost — you’ll also need to maintain, store and fuel it.

Financing options are available from a variety of different types of lenders, and the best loan for you will depend on a number of factors, including your credit score and the type and size of the boat you’re considering.

What is a boat loan?

A boat loan is a type of installment loan used to purchase a boat. You receive all of your funds at once and repay the loan in equal fixed payments at an interest rate you agree to over a term that typically ranges from two to 15 years.

You can use your boat as collateral for a loan, which is known as a “secured” loan. If you don’t repay a secured boat loan, the lender can seize your boat. Unsecured personal loans can also be used to finance a boat, although interest rates and fees are typically higher than secured boat loans.

Types of boat loans

Most boat loans are either secured or unsecured personal loans. A secured loan gives lenders the right to repossess your collateral if you don’t repay the loan. An unsecured personal loan isn’t tied to your boat, and the funds can be used however you wish. There are some important factors to consider when you’re choosing between a secured or unsecured boat loan.

Secured loans

You may get a lower rate or longer term from a secured boat loan lender because they have the legal right to seize and resell your boat to recoup financial losses if you default on the loan. With a secured boat loan, you may also qualify for a higher loan amount if you’re financing an expensive boat like a yacht — unsecured personal loan lenders usually set lower loan limits.

The main drawback is your boat also has to qualify for the loan, which may be an issue if you’re buying an older used vessel with little resale value. Investigate potential boat requirements ahead of applying to avoid spending the time to fill out an application for a vessel that isn’t covered.

Unsecured loans

An unsecured personal loan can be used for just about any purpose, including financing a boat. You’ll typically pay a higher rate for unsecured loans to cover the lender’s risk if you can’t repay the loan. However, you’ll have more freedom to expand your search without lender limitations on the condition, age or type of boat you buy. An unsecured loan can also be used to pay for boat maintenance and repairs.

Where to get a boat loan

The best boat loan for you may be available at your local bank, credit union or with an online lender. Regardless of where you get your boat loan, compare at least three lenders to see which rates and terms work the best for your boat purchase. Make sure you ask about secured and unsecured options — the rates and terms may be significantly different depending on which you choose.

Traditional banks

If you prefer in-person service and want to have all your accounts in one place, check on boat loan options with your local bank. Traditional banks may offer loyalty discounts on interest rates and fees related to boat financing if you’ve banked with them for several years.

However, you’ll typically need to meet higher credit standards and the loan process may take longer than other types of lenders. If you’re in a hurry to set sail or want to move quickly on a purchase, a bank may not be the right choice for you — especially given some banks may not even offer boat loans.

Credit unions

Credit unions can be a good source for boat loans — if you’re a member. You may be eligible for membership perks that are similar to those offered by banks, like lower interest rates and fees. Credit union loan approval requirements may be more relaxed than traditional banks, although you’ll generally need a fair or good credit score to qualify.

Online lenders

Online lenders mostly specialize in unsecured personal loans that can be funded quickly. They often have quick approval processes that require very little documentation. You may also find more options for bad credit, although you’ll pay much higher rates than other boat loan types. They are a good option if you are certain you can afford the payments, and you’re buying a used boat or can’t qualify for traditional or credit union boat loans.

How to apply for a boat loan

Applying for a boat loan is similar to applying for an auto loan if you take out a secured loan — the lender will need information about both you and your “vehicle,” which is a boat in this case. The unsecured personal application process is similar, except you won’t need to provide any details about the boat you’re buying.

Check your credit score

Lenders check your credit score to determine your creditworthiness. Secured boat loans may require higher credit scores than auto loans.

The higher your score, the more you can borrow at lower rates and longer terms. You may also have a lower down payment requirement than if you had a lower credit score. If your score isn’t in the good-to-excellent range, you may want to focus on unsecured personal loans to finance your boat.

Calculate how much you need to borrow

If you’re looking at a boat in a particular price range, use a boat loan calculator to get an idea of how much your payment will be. Compare the payment for a short term versus a longer-term loan.

A short term will pay your boat off faster with less total interest, while a longer term will save you money monthly, but cost you more over time. Include costs such as taxes, registration, insurance and ongoing maintenance in the total loan amount unless you plan to pay those costs in cash.

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Both secured and unsecured lenders look at your debt-to-income (DTI) ratio to determine how much of your monthly income is already committed to debt. They also want to confirm you have a steady income to repay the loan. You may need to scale back your boat price if your DTI ratio is higher than the lender’s requirements.


Gather the required documentation

You should have a recent pay stub, W-2, recent tax return, brokerage account statements, proof of residence and driver’s license ready to keep the loan process moving smoothly. You may also need information about your boat if you’re taking out a secured loan.

Online lenders usually allow you to upload your documents, and certain banks and credit unions may allow digital copies as well. Make sure you take legible pictures or scans of them to prevent delays.

Prequalify and compare lenders

Try to work with lenders that offer the option to prequalify for a boat loan. You’ll get a good idea of what they can offer without dinging your credit score with a hard inquiry. Compare the rate quotes from at least three lenders before you commit to one.

Submit a full application

After choosing the lender you want to do business with, you’ll generally finish the application process online. You should get a final answer within a few hours or a few days, depending on the type of lender you’re working with and whether you prequalify.

If you’re taking out a secured loan, you may have to wait for a marine survey report. This report assesses the boat’s value, similar to how a home appraisal estimates the value of a home.

The lender will run a hard credit check and may ask you for additional documentation before finalizing your loan paperwork. Funds are usually directly deposited into your bank account when the loan funds.

Pros and cons of financing a boat

Before you spend a lot of time applying for boat financing, review the potential benefits and drawbacks.

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Pros

  • Keeps your cash in the bank. If you don't want to clean out your savings account to buy a boat, a boat loan allows you to spread the cost out over time.
  • You can choose a variety of terms. Secured boat loan terms may be as long as 15 years, which may make even an expensive boat more affordable.
  • May act as a bridge loan while you sell your old boat. If you're waiting for a sale to go through on your old boat it's especially important to make sure the lender you choose doesn't charge a prepayment fee. That way you can use the cash from the sale to pay off the loan.
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Cons

  • Interest rates and fees add up over time. You'll ultimately spend much more than the price of the boat when financing it after you add in the interest charges and loan fees. You may end up paying double the original price or more.
  • You could lose the collateral if the loan is secured. Lenders have the right to repossess what you use as collateral if you can't repay the terms of a secured loan. Depending on the loan type, this could be your boat or even your home.

Alternatives to taking out a boat loan

There are other ways to purchase or use a boat if you don’t want to take out a boat loan.

Pay in cash

Paying cash for a boat is the cheapest purchase option because you don’t pay interest charges or loan fees. But make sure that you have enough remaining cash to maintain an emergency fund and accomplish other financial goals before considering this option.

Rent a boat

If you’re only an occasional boat user, renting one may be more cost effective. Aside from savings on loan costs, you won’t need to pay to store, maintain or insure it.

Marine financing

Boat dealers may offer financing options from a preferred lender onsite. This may be a convenient way to buy and finance your boat in one place, but you should still compare the financing terms with other lenders to ensure you’re getting the best deal.

Bottom line

A boat loan can be a great way to afford boat ownership, as long as the financing terms make sense for your budget. Decide how much you want to commit to and stick with a boat price that keeps your monthly payment affordable. Don’t forget to budget for the ongoing costs of owning a boat like fuel, maintenance, docking, storage and insurance.