Key learning points
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You can take out a loan from a bank, credit union or online lender to purchase a new or used boat.
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Maintenance, storage and insurance can add thousands of dollars in annual costs that must be accounted for before purchasing a boat.
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The average boat is on the water only 54 days a year – a consideration that should be taken into account when deciding whether to purchase a boat.
Americans spend more every year $49 billion between boats, maritime products and service, so we can say with certainty that we love sailing. But owning a boat is an expensive endeavor. In addition to the purchase costs, maintenance costs, insurance and other extras can save you several thousand euros per year.
Buying a boat can be a nice investment, but there are several factors to consider before applying for a loan.
5 factors to consider before applying for a boat loan
When it comes to purchasing a boat, financing is usually the best choice. But there are a few considerations to keep in mind before applying for a boat loan.
1. Your credit
Most boat loans are issued on a credit basis, so the higher your credit score, the more likely you are to get approved for the loan. Your credit score also plays a key role in determining how much interest you pay. While some lenders may approve you for a loan with less than perfect credit, you’ll likely get a higher interest rate.
To make sure your credit is in top shape, you can request a free copy of your credit report from all three major bureaus by visiting AnnualCreditReport.com. These reports give you an idea of where you stand against creditors and whether you need to build your credit before applying for a loan.
2. Your budget
As with any significant investment, such as a house or a car, it’s important to make sure your future loan payments fit comfortably into your monthly budget. Before applying for a loan, take stock of your debts, minimum payment obligations, and other financial obligations to understand how much boat you can afford.
Also note that depending on the lender, you may be asked to make a down payment of between 10 and 30 percent of the total loan amount. If you need help crunching the numbers, you can use Bankrate’s boat loan calculator. This will give you an idea of your price range and the length of the repayment term.
3. The type of loan you need
Boat loans can be secured or unsecured. Secured loans are loans that require assets to serve as collateral in case you default on the loan. Unsecured loans, on the other hand, require no collateral and are issued almost entirely on credit.
If your credit needs some work, choosing a secured loan may be the better option. Secured loans are typically easier to qualify for and offer lower interest rates than unsecured loans. However, if you default on the loan, you could lose the boat or other asset that was used as collateral.
Unsecured loans are better suited for people with good to excellent credit and strong financial records – or for those who have a cosigner who meets these criteria, as they can get the most favorable terms. If you fall behind on payments on an unsecured loan, the lender cannot seize your assets. But your credit is still affected by the default.
4. The total cost of owning a boat
This should come as no surprise, but the cost of the boat itself is only part of the equation. The annual maintenance costs for the boat are 10 percent of the total cost of the boat. So if you have a $40,000 boat, that works out to $4,000 a year.
You also have to pay for insurance. Boat insurance rates are approximately 1.5 percent of the insured value of the boat.
Other costs to consider include:
- Fuel.
- Dock fees.
- Storage costs.
- Taxes.
- Registration.
5. How often you use the boat
According to the US Coast Guardthe average boat in the US only sails 54 days a year.
If you’re thinking of using your boat occasionally during spring break or summer, it may not be worth taking on thousands of dollars in debt, among other expenses.
You may be better off renting a boat for specific occasions if you don’t plan to use it year-round. Although renting is not cheap either, you will save money on insurance costs, maintenance and other costs.
Where to get your boat loan
You can get your boat loan from community and national banks and credit unions. You can also get a boat loan from specific online lenders if you prefer to go the online route when applying.
There are also lenders that deal with maritime financing, often found through dealers. Depending on where you live, you may have the option of visiting a brick-and-mortar lender.
How do you qualify for a boat loan?
As with any other loan, you must meet the lender’s eligibility criteria. However, boat loans can be more difficult to get approved than other types of financing options. You must meet financial requirements, but your boat may also have to meet age and fitness requirements.
To be approved for most boat loans, you will likely need to have good to excellent credit, earn a stable, reliable income, and have a low debt-to-income ratio (DTI) to qualify. These specific factors are used to determine your creditworthiness, so pay attention to the lender’s requirements and your financial health before applying.
It can be more difficult to find financing for older boats, especially if you’re looking for secured options. If your credit isn’t in the best shape and the boat is an older model, you may need to consider an unsecured option with a cosigner.
Shop around for lenders before applying for a loan. Some lenders even offer prequalification, which allows you to check what you may qualify for without affecting your credit. Comparing quotes from multiple lenders is the best way to ensure you get the most favorable terms for your situation.
