The Basics of Financing a Boat

Last Updated on May 26, 2021

If you’re thinking about buying a boat, getting a loan for the purchase might be the simplest path to take. Instead of coming up with a big chunk of money all at once, you can make affordable payments on the boat over time. Here are the basics of how boat loans work and some answers to common questions.

How Long Are Boat Loans?

Boat loans come in all shapes and sizes to fit the buyer’s needs. In most cases, buyers prefer a longer-term so that they can achieve a more affordable monthly payment. For instance, the most common range for a boat loan is 15 to 20 years. By stretching it out this long, you can really get a pretty low payment for a decent boat.

Another factor to think about when choosing the term of your loan is whether you’ll go with a fixed rate boat loan or an adjustable-rate. The safest route is to go with a fixed rate, but it can also make you pay a little more in interest by doing so. If you think rates are low and they’ll be low for the foreseeable future, getting an adjustable-rate APR on your boat loan might be the way to go. It’s a gamble, but it could pay off in the form of lower payments and overall savings on the loan. You could also start out with an adjustable-rate and then refinance into a fixed-rate at some point if rates are increasing.

If you don’t want to spend a lot in interest, it might be wise to select a shorter-term boat loan. For example, if you plan on paying off the loan early because you’ll get a large amount of money at some point, you could get a 5 or 7-year loan instead. This will give you a higher monthly payment, but it can also save you a boatload in interest.

Is it Hard to Get a Boat Loan?

Getting a boat loan is much like getting a loan for any other large purchase. You’ll need a decent credit score, a solid debt-to-income ratio, and a sufficient amount of monthly income to get approved. Each loan and lender have different standards with some easier to get approved for than others. If you have a borderline credit score or debt-to-income, it doesn’t necessarily mean that you can’t get a boat loan. It might mean that you just have to work a little harder to find the lender that is willing to work with you. Some lenders take on more risky credit profiles than others. There’s a good chance that you’ll have to pay more in interest or fees to make that happen though.

If you’re worried that you may not qualify for a boat loan, it’s a good idea to work on your credit profile ahead of time. Try to pay off as much debt as you can. Make your payments on time and get your credit balances down below 30% of the account maximums if possible. All of these things will increase your chances of approval and increase your chances of the wind blowing through your hair on that new boat you want.

Ultimately, boat dealers want to sell you a boat if you want to buy one. Therefore, they’ll help you look at every possible option they know of to finance one. In some cases, you may not be able to get a traditional boat loan. However, you can look at other options such as a home equity loan or a home equity line of credit. If you have equity in your house, this might be the best approach to take to purchase the boat you want.

Do Boats Require a Down Payment?

Besides having a solid credit profile and sufficient income, you’ll also probably need to have some cash for a down payment. For most traditional boat loans, you’ll need to come up with about 15 to 20 percent down. If your credit is less than ideal, you might have to come up with 30 to 50 percent down. There are some loans out there that may not require you to put money down or just pay a smaller down payment, such as 10 percent. To get those, you’ll probably need great credit and income.

One option that wouldn’t require a down payment is getting a home equity loan or home equity line of credit. With this option, you’re just borrowing the money from the equity in your home and using it to buy a boat. If you have enough equity in your home, you wouldn’t have to come up with any cash down to buy the boat. You’d still have to pay closing costs on the loan though. If the equity is enough, you may be able to roll those into the loan, which means you wouldn’t have to come up with anything upfront.