How boat loans work: Types, terms, where to borrow and more
Key takeaways
Boat loans may be secured by the boat itself while other loans are unsecured.
The repayment term and the size of the monthly payment depend on the type of boat loan you choose.
Boat loans are available at marine lenders, banks, credit unions and online lenders.
Before applying for a boat loan, you should know your credit score and how much you want to borrow.
A boat loan is a type of financing used to purchase a boat or another marine craft. Like auto loans and personal loans, these installment loans usually come with fixed interest rates and monthly payments and a set repayment term.
Boats can be expensive, with the cost for a new small runabout falling anywhere from $10,000 to $75,000 or more. Financial institutions from banks to online lenders and even marine-specific dealerships offer loans to spread that cost out over a term you can afford.
What are boat loans?
Boat loans are installment loans for purchasing boats or other marine craft. Your funds are sent in a lump sum and typically repaid in fixed payment terms ranging between two to 15 years.
Dealerships, credit unions and banks usually offer secured boat loans that require you to use the boat for collateral. If you can’t repay a secured loan, the lender can seize your boat. Unsecured personal loans can also be used to buy a boat if you can afford the higher rates and payments that usually accompany them.
Types of boat loans
Lenders that offer boat financing will generally give you secured and unsecured loan choices. While they all function similarly and are used for the same purpose, the details and eligibility requirements are different.
Secured loans
Who a secured boat loan is best for
Secured loans are best for borrowers with good credit who want the lowest rates to finance a pricey new luxury boat. Lenders scrutinize the year, make, model and any extras you add.
Secured boat loan terms may be as long as 15 years, giving you a much lower payment than the seven-year maximum that usually come with unsecured personal loans. You may also have a better chance of getting approved for a secured loan if you have bad credit since the lender can repossess the boat if you default.
However, if you’re buying an old used boat, you may be out of luck if the vessel doesn’t meet the lender’s secured loan requirements. You may also encounter variable-rate loans or balloon payments. The low introductory rates usually only last a short time before going up, and balloon payments require you to pay the entire balance off after a set period that could be as short as three years.
Types of secured boat loans
Secured personal loans: Some lenders offer secured personal loans. You may be able to borrow more than you’d qualify for without using the boat as collateral.
Secured marine loans: Certain marine dealerships may also provide in-house or third-party loans that allow you to finance extra equipment, extended service plans and insurance coverage. Don’t fall for high-pressure sales pitches — your experience may be similar to getting an auto loan from a dealership.
Home equity loan: Instead of securing the loan with the boat, a home equity loan secures the loan with your house. It lets you borrow up to a certain percentage of your home’s equity — typically around 80 percent. Just be careful: If you can’t repay the loan, you could lose your home in a foreclosure.
Unsecured loans
Who an unsecured boat loan is best for
Borrowers in excellent credit health will benefit most from an unsecured boat loan. Those who want to purchase an older model may also need to opt for this type of boat loan.
Unsecured loans are offered by almost every lender or financial institution. You’ll be capped at lower loan amounts and shorter terms than secured loan options, making it a better option for older and cheaper used boat purchases.
You’ll see a bigger difference between minimum and maximum rates with unsecured loans, making it a good idea to prequalify with multiple lenders so you get the most competitive rates.
Unsecured personal loans can be used for just about any purpose, making them more common than secured ones. The lender’s approval conditions or website should tell you if they have any rules against using your funds to buy a boat.
How do boat loans work?
A boat loan — regardless of the type — works like other installment loans. You receive all of your funds at once, and the balance is paid off over a set period in monthly installments.
Secured boat loan lenders qualify you based mainly on your credit, income and the type of boat you’re buying. Lenders consider secured boat loans less risky and may offer lower rates since they can take your boat back if you don’t repay it.
You can’t usually borrow more than the price of a boat, since the loan used the boat as collateral. Some lenders even require 10 to 20 percent down payment, depending on how much you’re borrowing.
Unsecured personal loan lenders focus on your credit and income for qualifying, but don’t require information about the vessel you’re purchasing. Because your boat isn’t used as collateral, no down payment is required. You can borrow more than the boat costs to cover boat-related costs like maintenance, fuel, marina fees or upgrades.
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
A variety of dealers and brokers across the country specialize in loans for new and used boats. They may be onsite at boat dealerships, or you can find them through an organization like the National Marine Lenders Association.
Marine lenders typically have a better understanding of the lifecycle of a boat compared to other vehicles. You may find more options with a longer term than you’d get at a bank, credit union or online lender. However, because they usually only deal with secured loans, you may need a down payment or have to meet more stringent lending requirements than unsecured personal lenders.
Banks
It’s always wise to see if your bank offers any boat loan benefits if you’re a long-time customer. For example, some banks offer interest rate discounts, repayment flexibility or extended loan amounts for those with an active open account.
Every bank is different, and some may not allow customers to use the funds to finance a boat or boating-related costs. Also check if it requires a down payment prior to applying.
Credit Unions
Credit unions may offer boating-specific financing options or may allow members to use the funds for related costs. When dealing with a bank or credit union, ask if any of their loan officers have experience with boat loans. If you’re a first-time boat buyer, you may want to work with a marine lender who can explain the ropes of boat ownership to help you craft the right loan.
Online lenders
Online lenders are popular because of how easily and quickly funds can be borrowed. Some may offer boat-specific loans, but most are unsecured personal loans. Online lenders serve customers across a wider credit spectrum than banks, credit unions or marine lenders.
You’ll find a number of bad credit loans or may be able to snag very low rates if you have excellent credit. You can usually upload your documents online and funds may be available within one business day. Because they’re unsecured, you don’t typically have to provide information about your boat.
Pros and cons of financing a boat
Whether you’re looking to cruise around the ocean in a luxury yacht or have been dreaming of Saturdays on the lake with your family, there are factors to consider before applying.
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.
Rates are low for those with a good credit score.
Payments can be low with a long term.
Cons
May be hard to get approved for.
If the loan is secured, you’re at risk for losing your collateral should you stop making your monthly payments.
High interest rates could lead to paying off more than you originally borrowed.
Stretching out a loan term means paying more interest over the life of the loan.
How to apply for a boat loan
The application process will look different for every lending institution, but if completed online it will mimic a personal or auto loan application.
You’ll go to the lender’s website, provide financial and personal information, 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 steps that every borrower should take before filling out the application to ensure a smooth, efficient process.
Knowing your score will give you a better idea of your approval odds before applying. You can typically get a free look at your credit score from your bank or credit union, 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 copy. You can request a copy once a week. Although this won’t show you your score, it will help you know where you stand.
Before applying for any loan, have a specific number that’s 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.
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.
