Boat Loans: How To Finance A Boat Purchase

Many Americans dream of owning a boat and exploring the open sea, taking the family out for a ride or simply floating leisurely out on the water. That dream can be expensive, though, and the prices most boats go for can make boat ownership an unattainable goal for some people. Fortunately, boat enthusiasts have the option to apply for a boat loan that could provide them the cash they need to make their boat-owning dreams a reality.

Let’s dive into everything you need to know about boat loans, different types of boat financing and how the boat loan application process works.

Types Of Boat Loans And Financing

Like auto loans and other types of loans, a boat loan can finance your watercraft purchase and allow you to pay the money back over a period of time. There’s no one route to necessarily go when getting a boat loan, though.

Take a look below at some of the ways you can finance your new watercraft.

Boat Dealer Financing

You can often work directly with a boat dealership to set up a financing plan that works for you. Many boat retailers may have an in-house finance specialist or work directly with a third-party lender. Securing financing through your boat dealer could get you special deals and rate discounts because of the lender’s established relationships with finance companies and manufacturers. The lender may also have access to extended warranty programs that you can include in your loan.

Don’t hesitate to speak with your local retailer about their financing programs to see what kind of deals they can offer.

Personal Loan

You can use a personal loan for various purchases and expenses, which include financing a boat if that’s your preference. The funds from a personal loan are delivered to the borrower in a lump sum and can be paid back over a period of time through monthly payments.

How long it takes to get a personal loan will depend on your lender, but you can expect to receive your funds within 1 – 7 business days. In some cases, you may be eligible for same-day financing with a personal loan.¹

Home Equity Loan

Another option for boat financing is a home equity loan, where your loan amount is determined by the equity you’ve built up in your home. Equity is the value of your home minus your remaining principal mortgage balance.

However, compared to a personal loan, a home equity loan carries a little more risk. With a home equity loan, your home acts as collateral for the loan. This means that if you can’t pay off your loan, your lender has the right to seize your property.

HELOC

Similar to a home equity loan, a home equity line of credit (HELOC) – like a credit card – acts as a revolving line of credit that you can borrow from and then pay back. The amount of credit you can borrow from, again, depends on your home’s equity and value, and you still risk losing your home through foreclosure by putting it up as collateral.

How A Boat Loan Works

Secured Vs. Unsecured Loans For Boats

There are two major types of personal loans to consider for a boat loan: secured and unsecured. Whichever one you choose can have major implications if you, for any reason, fail to pay back the loan.

Secured Loans

A secured loan is backed by collateral (such as the boat you plan to purchase) that can be seized or repossessed in the event you default on the loan.

Unsecured Loans

An unsecured loan, in contrast, isn’t backed by any assets. Your credit history alone assures your creditworthiness for the loan. Since an unsecured loan can mean a greater risk for a lender, you may see a higher interest rate as a result. On the bright side, you won’t risk losing your boat or other assets in the event of a default, although your credit score will suffer.

Where To Look For Boat Loans

A few lender options are available to choose from when seeking a boat loan. Take a look at them below and note their pros and cons.

• Dealerships: Boat dealers will typically work with marine lending specialists and manufacturers that understand the product well, making it easier to go through a dealership to secure a boat loan. On the downside, a boat loan through a dealer will almost always be secured by the boat, and it may also require a down payment of 10% – 20% of the boat’s purchase price.
• Traditional bank: The traditional brick-and-mortar route can be beneficial if you go through your current bank. Current customers are often offered discounts or more favorable loan terms.
• Credit union: Credit unions are nonprofit institutions that can offer loans to borrowers with a relatively low credit score. You must be a member of a credit union before applying for a loan, though, and your history with the institution can play a role in your approval.
• Online lenders: Online lenders can customarily approve and deliver funds faster than brick-and-mortar banks or credit unions, and most online lenders offer unsecured personal loans. They may also offer prequalification by way of a soft credit check – with no risk to your credit score – so you can see ahead of time the potential rates and terms you qualify for.

Required Credit Score

A higher credit score will offer you a better interest rate and term for your loan, but the minimum accepted credit score for a personal loan is typically 650 if you want a good rate, relatively speaking. A lower score may be accepted, though, especially if you’re a longtime customer of a traditional bank or credit union.

If your score isn’t as high as you want it to be, consider taking some time to build up your credit to get the best possible loan term and buy the best possible boat.

Typical Boat Loan Terms

A personal loan term typically lasts 12 – 60 months, and the general rule of thumb is that the longer the repayment term, the more the loan will ultimately cost. For a cost-effective approach, only borrow as much as you need for your purchase and what you could realistically pay back in a shorter amount of time.

Average Boat Loan Rates

Your interest rate will be determined by your credit score, credit history and debt-to-income ratio (DTI). Interest rates for personal loans can be in the 6% – 36% range, which is a wide one, but your rate will ultimately depend on your creditworthiness and your lender. If you have a fixed-rate plan, your monthly payments will always be the same amount, regardless of whether market rates go up.

What To Consider When Buying A Boat

Just as owning a car comes with additional costs, the same can be said for watercraft vehicles. Take a look below at how to account for all the expenses associated with buying a boat. We’ll also delve into how to calculate what you can afford. 

Calculating Your Boat Loan Costs

Figure out how much boat you can afford before getting in too deep with a boat loan. Apply to be prequalified with multiple lenders for insight into your potential interest rate and annual percentage rate (APR) and how they’ll affect your monthly payment amount.

Take a look at your current DTI, too, and determine how much more debt you can feasibly take on. Also consider your other monthly expenses, such as groceries, gas and utilities.

In addition to your monthly payments for your boat loan, you should budget accordingly for ongoing costs such as fuel, storage, boat insurance, licenses, registration, repairs and maintenance. If you’re not buying a new boat, you may need to pay for an inspection, or a marine survey, to determine if the boat is safe to take out on the water.

Applying For A Boat Loan

Getting a personal loan can be faster and easier than getting a number of other loans. Follow the steps below to acquire your boat loan:

1. Determine how much money you need. Sailboats, motorboats, yachts and other types of boats are all priced differently, and the same is true for new and used boats. Consider also all the additional costs discussed above so you can have all the cash on hand that you need for your purchase.
2. Check your credit score. Make sure your credit score qualifies you for a low interest rate. Otherwise, you could end up saddled with high-interest payments. Check your credit score to see if you’re in good shape to pursue a boat loan.
3. Compare lenders and loan options. Research various loan options and lenders to find the best deal for you. Getting prequalified for a loan is the ideal way to see the loan terms you’re likely eligible for.
4. Choose a lender and apply. Once you’ve found the lender with the best offer, complete a full application and send it in. This will likely involve a hard inquiry, which may affect your credit score slightly and temporarily.
5. Receive your funds and buy your boat. You should hear back from your lender in 1 – 7 business days and receive your funds in your bank account. Take your cash and buy that boat you’ve been eyeing, but be ready to start making payments 30 days after collecting your funds.

Alternatives To Taking Out A Boat Loan

If a boat loan won’t work for you, perhaps consider trying one of the alternative financing options discussed next.

Use A 0% APR Credit Card

Some credit cards offer a 0% APR introductory period that can last 6 – 21 months, depending on the lender. During this period, you can repay what you borrowed completely interest-free. You should only consider using a credit card if you’re confident you can pay off the entire amount within that promotional period, though, since credit cards have much higher interest rates than personal loans.

Save Up For A Purchase

If you can afford to use money from your savings, this can be an immediate way to get the cash you need for your boat purchase. Although buying a boat doesn’t exactly constitute an emergency, you could also draw from your emergency fund if you have one. This may not be the greatest idea, though.

FAQs About Financing A Boat

Have more questions about loans? See if we’ve answered them below.

How long are boat loans typically for?

A personal loan term typically runs 12 – 60 months, but the length of a boat loan can vary even more significantly depending on your lender, creditworthiness and other factors. Boat loans through a dealership, bank or credit union can typically last anywhere from 4 – 20 years.

What is a good interest rate for a boat loan?

The average interest rate for a boat loan is in the 5% – 7% range, but your rate will depend on your creditworthiness and the lender of your choosing. To qualify for a relatively low rate on a personal loan, you should have a good or excellent credit score.

Is it easier to get a loan for a new or used boat?

Getting a loan for a new boat can be easier than getting a loan for a used boat. Since older models can be seen as riskier to finance, lenders may have more requirements when financing a used boat. For example, they may require having a full inspection done to make sure the boat is functional and safe to operate. Some lenders may charge a higher interest rate or even refuse financing for used boats.

Final Thoughts

Buying a boat can be an expensive dream, but it may not be an impossible one. Several financing options could be an option for this purchase, depending on your financial situation and preferences. A personal loan tends to be the most popular choice because it can get you your money quickly, it has a straightforward and simple application process and it can be an unsecured loan involving no collateral. If that all sounds ideal to you, then a personal loan may be the way to go.

Want to get the process started? Fill out an application today with Rocket Loans℠.

¹Same day funding is available for clients completing the loan process and signing the Promissory Note by 1:00 p.m. ET on a business day. Also note, the ACH credit will be submitted to your bank the same business day. This may result in same day funding, but results may vary, and your bank may have rules that limit our ability to credit your account. We are not responsible for delays that may occur due to an incorrect routing number, an incorrect account number or errors of your financial institution.