Key learning points
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With a boat loan you can finance the cost of a boat over several years, instead of paying for everything at once.
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A secured boat loan can come with lower rates and longer repayment terms.
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An unsecured personal loan can make financing an older used boat easier.
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Online lenders, credit unions, traditional banks and specialist marine finance lenders can offer a variety of different boat loan options.
If you want to buy a boat so you can set sail whenever you want, you may need a boat loan to make that dream a reality. Boat loans are a type of installment loan used specifically for the purchase of a ship. These loans may or may not be secured and have a repayment term of two to fifteen years.
Boat loans are available from different types of lenders. But the best boat loan for you depends on a number of factors, including your credit score and the type and size of boat you’re considering.
How to get a boat loan in 5 steps
Applying for a boat loan can be similar to applying for a car loan. If you take out a secured loan, the lender will need information about you and the boat you are considering purchasing. However, for an unsecured loan, you do not need to provide details about the boat. Regardless of the type of loan you choose, make sure you follow these steps for a smoother application.
1. Check your credit score
Lenders check your credit score to determine your creditworthiness. Secured boat loans may require higher credit scores than car 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 is not in the good to excellent range, you may want to focus on unsecured personal loans to finance your boat.
2. Calculate how much you need to borrow
If you’re looking for a boat in a certain 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 loan with that for a longer-term loan.
A short term will pay off your boat faster with less overall interest, while a longer term will save you money monthly but will 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 these costs out of pocket.
Insight into bank rates
Both secured and unsecured lenders look at your debt-to-income ratio (DTI) to determine how much of your monthly income has already been spent on debt. They also want to confirm that you have a steady income to repay the loan. You may need to lower the price of your boat if your credit profile does not meet the lender’s requirements for the amount you want.
3. Gather the required documentation
You will need to have a recent pay stub, W-2, tax return, brokerage account statements, proof of residency, and driver’s license on hand to make the loan process go smoothly. You may also need information about your boat if you take out a secured loan.
Online lenders usually allow you to upload your documents, and certain banks and credit unions may also allow digital copies. Make sure you take legible photos or scans of them to avoid delays.
4. Prequalify and compare lenders
Try to work with lenders that offer the opportunity to pre-qualify for a boat loan. You’ll get a good idea of what they can offer without burdening your credit score with a difficult inquiry. Compare rate quotes from at least three lenders before committing.
5. Submit a complete application
Once you’ve chosen the lender you want to do business with, you typically complete the application process online. Depending on the type of lender you work with and whether you pre-qualify, you should receive a final answer within a few hours or a few days.
If you take out a secured loan, you may have to wait for a maritime survey report. This report assesses the value of the boat, 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. The money is usually deposited directly into your bank account.
Where you can get a boat loan
The best boat loan for you may be available from your local bank, credit union, or from an online lender. Regardless of where you get your boat loan, compare at least three lenders to see which rates and terms work best for your boat purchase. Ask about secured and unsecured options. The rates and terms can vary significantly depending on which one you choose.
Traditional banks
If you prefer personalized service and want all your accounts in one place, check boat loan options at your local bank. Traditional banks may offer loyalty discounts on interest rates and fees associated with boat financing if you have been banking with them for several years.
However, you will normally need to meet higher credit standards and the borrowing process can take longer than with other types of lenders. If you’re in a hurry to get out or want to make a quick purchase, a bank may not be the right choice for you, especially since some banks may not even offer boat loans.
Credit unions
Credit unions can be a good source for boat loans – if you are a member. You may be eligible for membership benefits similar to those of banks, such as lower interest rates and fees. Approval requirements for credit unions may be more relaxed than traditional banks, although you generally need a fair or good credit score to qualify.
Online lenders
Online lenders mainly specialize in unsecured personal loans that can be financed quickly. They often have quick approval processes that require little documentation compared to other options.
You may also find more options for bad credit, although you’ll pay much higher rates than other types of boat loans. That said, if you have excellent credit, you can find some of the best rates on personal loans. They are a good option if you are confident you can afford the payments, and you are purchasing a used boat or do not qualify for traditional boat loans or credit unions.
Alternatives to taking out a boat loan
Boat loans can help spread the cost of purchasing a vessel, making the initial investment more affordable, but there are also some disadvantages. For example, many lenders charge origination fees on top of interest, resulting in higher overall costs.
If you have less than excellent credit, you may also end up with high interest rates and monthly payments, increasing your chances of defaulting on the loan. That said, there are other ways to buy 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 or loan fees. But make sure you have enough money left over to maintain an emergency fund and achieve other financial goals before considering this option.
Rent a boat
If you are only on the water occasionally, renting a boat may be more economical. Aside from saving on loan costs, you won’t have to pay for its storage, maintenance, or insurance.
Maritime financing
Boat dealers can offer on-site financing options with a preferred lender. This can be a convenient way to buy and finance your boat in one place, but you should still compare financing terms with those of other lenders to ensure you get the best deal.
The bottom line
A boat loan can be a great way to pay for owning a boat, as long as the financing terms fit 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, such as fuel, maintenance, mooring, storage and insurance.
