Whether used for recreational purposes, work or transportation, a boat is a hefty expense, with the average cost for a new model falling anywhere from $15,000 to $75,000 or more. Many financial institutions from banks to online lenders and even dealerships offer loans to make the expense more affordable.

A boat loan is a type of personal loan used to finance the purchase of a boat or another marine craft. Functioning similarly to auto loans and personal loans, these installment loans come with a repayment term, fixed monthly payments and variable-or-fixed interest rates.

Different types of boat loans

There are a few different types of boat loans; while they all function similarly and are used for the same purpose, the details and eligibility requirements are vastly different.

Secured

Secured loans are geared toward borrowers with a lower credit score or are used when the product being financed is exceptionally large, like a home or a luxury boat. Secured loans are backed by collateral – property, a vehicle or in this case, the boat itself.

It’s typically easier to get approved for a secured loan because the lender assumes less risk due to the funds being backed by collateral. However, if you take out a secured boat loan, you need to assume the risks that come with it. If you fail to make payments for an extended period of time, the lender has the right to seize your collateral to satisfy the delinquent payments.

Unsecured

Unsecured loans are a common boat financing method. An unsecured loan doesn’t require collateral and generally comes with more payment flexibility and better rates for the most creditworthy borrowers.

Unsecured loans are harder to get approved for, as the lender is assuming more risk by lending you the money without collateral backing the loan. As a result, higher minimum and maximum rates are likely and usage restrictions are common.

Home equity loan

Home equity is the portion of your mortgage that you’ve paid off when compared to the original loan amount. A home equity loan taps into this by letting you borrow up to a certain percentage of your home’s equity (typically around 80 percent).

A home equity loan – like a personal loan – is an installment loan that’s disbursed in one lump sum amount. They come with fixed interest rates and repayment terms that can span between five to 30 years. Also called a second mortgage, a home equity loan is a type of secured loan. This means that the lender could seize your home should you fail to make the payments. That said, these loans tend to have some of the lowest interest rates in the market, starting at about 5.99 percent.

Personal loan

For individuals with a strong credit score and financial history, a personal loan could be a good option for financing a boat. Personal loans are offered by banks, credit unions and online lenders; all of which have high approval standards.

Some lenders allow its most creditworthy applicants to borrow up to $100,000, although many cap the maximum borrowing amount around $50,000. Most personal loans are unsecured and not every lender has the same approval and usage requirements. Before applying for a personal loan, check to see if the funds can be used to finance a boat.

How boat loans work

A boat loan – regardless of the type – is an installment loan. The balance is paid off over a set period of time in monthly installments. They operate similarly to auto loans in that they’re offered by a number of institutions and lenders. Depending on the loan and your creditworthiness, you may be allowed to choose or alter your repayment timeline or loan details.

Some lenders offer loans specifically for boats, but most will offer personal loans that can be used to finance a boat and its related costs, like maintenance, fuel, marina fees or upgrades.

The type of loan you choose will determine the length of your repayment term and the size of your monthly payment. For example, a personal loan typically comes with a much shorter repayment term – generally up to seven years – while a home equity loan’s term can last up to 30 years.

Some lenders or banks may require a downpayment (generally between 10 and 20 percent) on the boat before getting approved for a loan. However, not every institution requires this and some may even allow you to expense up to 100 percent of the total cost.

Where to get a boat loan

Boat loans are offered by most financial institutions, from brick-and-mortar banks to online-only lenders. The best option for you will depend on your credit situation, your previous banking history and what type of boat you’re looking to finance.

Marine lender

There are lenders across the country that specialize in loans for new and used boats, as well as refinance loans for existing boat loans. While these aren’t as common as personal loan lenders, a quick Google search will pull up marine lenders and maybe even local branches in your area.

Like every other option, there are upsides and downsides to financing with a marine lender. For one, you could end up paying more in interest or may have a harder time getting approved than with a traditional personal loan. However, you may be able to set sail on the open waters sooner than with any other type of institution, since its focus is solely on boaters.

Banks

Before starting the selection process elsewhere, it’s always wise to see if your bank offers the type of loan you’re after and if it provides any member benefits to its existing customers. For example, some banks offer interest rate discounts, repayment flexibility or extended loan amounts for those with an active open account.

Keep in mind that every bank is different, and some may not allow its customers to use the funds to finance a boat or boating-related costs. And if your bank does approve this, check to see if it requires a down payment prior to signing on the dotted line.

Credit Unions

Operating similarly to banks, credit unions may offer boating-specific financing options or may allow its members to use the funds for related costs. While it may be more convenient to stick with what you already know, compare the rates you’re offered with other institutions to ensure you’re getting the best rate possible.

Online lenders

Online lenders are among the most popular financing methods. Some offer boat-specific loans, while others allow borrowers to use the personal loan funds for marine expenses. Online lenders come in many forms to suit borrowers across the credit spectrum, from bad-credit loans to loans specifically designed for individuals with excellent credit.

Lenders that offer loans for thin credit or a less-than-average score will likely come with higher rates, lower borrowing amounts and may not allow the funds to be used for a boat. Before applying, read the terms and conditions thoroughly to be sure it allows for marine-related expenses.

Pros and cons of financing a boat

Whether you’re financing a boat as a large step in your career development, are looking to cruise around the ocean in a luxury yacht or have been dreaming of Saturdays on the lake with your family, there are things you need to consider before signing on the dotted line.

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.
  • The repayment terms are generally flexible and the rates are low for those with a good credit score.

Cons

  • May be hard to get approved for.
  • If the loan is unsecured, you’re at risk for losing the boat should you stop making your monthly payments.
  • High interest rates could lead to paying off more than you originally borrowed.

How to apply for a boat loan

The application process will look different for every lending institution, but if completed online, will mimic a personal or auto loan application.

You’ll go to the lender’s website, apply online (come prepared with your financial information and personal documentation on hand), be notified of your approval status and then have the funds disbursed according to the lender’s timeline.

Regardless of the institution or lender, there are some things that every borrower should do before filling out the application to ensure a smooth, efficient process.

  1. Know your credit score: Knowing your score gives you a better idea of your approval odds before applying. You can typically get a free credit score report from your banking institution, although that’s typically limited to one credit bureau. If you’re interested in what’s showing up on your credit report from all three credit bureaus (Experian, TransUnion and Equifax), visit AnnualCreditReport.com and request your free annual copy. Although this won’t show you your score, it will help you know where you stand.
  2. Know exactly how much you need: Before applying for any loan, have a specific number in your head of exactly how much you need to borrow. This will help you avoid paying off more than you need down the road. When crunching these numbers, take into account any lender fees, such as application or origination fees, as these can eat away a portion of your loan.
  3. Prequalify and compare lenders: The most important step in applying for any loan is to prequalify if possible. Prequalification is offered by most lenders and allows you to see your predicted rates without impacting your credit. From there, you can pick the lender that offers the most competitive rates.