You've found the boat of your dreams and now it’s time to pull the trigger and make your boating dreams a reality—all that’s left to do is figure out how to get a boat loan. Don’t worry, this is every bit as easy as getting a car loan or similar financing.
You can get a boat loan from banks, credit unions or online lenders. The application process is typically fast, and approval is largely based on your credit score and ability to repay. While some lenders require the loan to be secured by the boat, they don’t require a down payment.
Before you jump in, consider that most financial experts don't recommend personal loans for discretionary purposes, especially if you already carry credit card or other debt. If you take a personal loan, have a plan to pay it off.
Here’s how to finance a boat with a personal loan, where to find boat loans, how to determine the costs, and factors to consider before applying. In the end, if you decide a boat loan isn't for you, there are still a few alternatives that can get you on the water debt-free.
How boat loans work
A boat loan is an installment loan with fixed monthly payments typically over two to 15 years. Interest rates and loan terms vary based on the lender, the size of the loan, your credit score and income, and whether the loan is secured by the boat or unsecured.
Secured boat loans use the purchased boat as collateral. They may have higher loan limits, longer repayment terms and lower rates than unsecured loans. The risk is that you can lose your boat if you default.
Secured loans work best for borrowers who don’t qualify for an unsecured loan, want a higher loan amount, and are comfortable with the risk associated with secured loans.
An unsecured boat loan doesn’t use the boat or anything else as collateral. Without that backing, rates on unsecured loans may be higher and terms shorter.
You may not lose your boat if you default on an unsecured loan, but you’ll still face consequences, including a damaged credit score and wage garnishment if the lender takes you to court.
Where to get a boat loan
When considering boat loans from different lenders, use the loan’s annual percentage rate, which includes the interest rate plus fees, to compare costs and payments that fit your budget.
1. Arranging financing through your boat dealer
This is usually the best bet. Boat dealers set up boat loans every day, so you’ll be working with someone who knows the ropes, has established relationships with lenders, and also wants to make the entire transaction happen as quickly and seamlessly as possible. They can usually help with some recommendations for setting up insurance, too.
2. Get a loan from your bank
Some buyers who have a lot of equity in their home find it advantageous to take out a home equity loan or a second mortgage, either because they may get a lower interest rate or for tax purposes. Remember, however, that this will add some time and complexity to the transaction.
U.S. Bank has secured loans for both new and used boats, including sailboats, motorboats and yachts.
The bank sets a maximum loan amount of $150,000 for new boats and $99,999 for used boats. APRs range from 5.74% to 8.74% and include a rate discount of half a percentage point for borrowers who make automatic payments through a U.S. Bank checking account.
Wells Fargo offers secured loans up to $100,000 for new and used boats up to 26 feet long, including ski boats, pontoons and sailboats.
Wells Fargo’s secured loans have repayment terms of 12 months to 12 years. Customers who choose automatic payments from a Wells Fargo checking account may qualify for an interest rate discount.
USAA provides its members secured personal loans starting at $5,000 for new and used motorboats, fishing boats, pontoons, sailboats and yachts. APRs start at 5.75% for borrowers with excellent credit, including a small rate discount for automatic payments.
3. Online lenders
LightStream, the online lending division of SunTrust Bank, offers unsecured personal loans that can be used to buy or refinance a boat priced up to $100,000. The lender requires excellent credit to qualify for its lowest rates.
4. Credit unions
Credit unions are nonprofit lenders that may provide lower rates for borrowers with average or bad credit.
First Tech Federal Credit Union offers secured boat loans up to $500,000 for new or used boats up to 10 years old. Rates start at 4.50% APR, but are slightly higher for older models.
Navy Federal Credit Union provides its members with secured loans up to $500,000 for boats and personal watercraft. Rates start at 6.05% APR for new boats with a loan term of up to 36 months.
5. Marine lending specialists
Since financing a boat is a bit different than financing other things, there are some lenders who specialize in it. In fact, there’s even an organization, the National Marine Lenders Association, made up of lenders who are familiar with all the ins and outs of making boat loans.
These financial service companies act as brokers to find you a boat loan. They secure funding through outside sources, such as banks.
Boat loans from marine lenders have similar rates and repayment terms as personal loans. One advantage might be the ability to work with a specialist who understands the boating business, according to the National Marine Lenders Association.
However, these loans must be secured by the boat and require down payments from 10% to 20% of the purchase price.
Use a Boat Loan Calculator
When you get your boat loan, just what will the payments be? To get a good idea of how the monthly expense for different loans will shake out, Discover Boating has a great Boat Loan Calculator.
Of course, there are some other variables that can come into play. Credit scores, debt ratios, and net worth may all be considered by the lender, more or less depending on your personal circumstances and the size and term of the loan. However, there are a few generalities that hold true for the vast majority of boat loans:
- Interest rates generally go down as the loan amount goes up.
- Interest rates generally go down as the term of the loan goes down.
- Higher loan amounts can usually be stretched over longer periods of time. In most cases, boat loans range from four to 20 years.
- Usually, the lender will be basing a boat loan on a 10- to 20-percent down-payment. That said, there are some no-money-down deals out there.
- Often, you can roll the expenses of accessories like electronics, trailers, and even extended warranties into a boat loan. Just be sure to pick out the complete package you want, ahead of time.
- Most lenders will be looking for credit scores of about 700 or higher. You can get a boat loan with a lower credit score, but expect that you may have to pay a penalty in the form of a higher interest rate or a larger down-payment.
What to ask before you apply
How does the loan fit into my budget? Monthly payments on a boat loan should fit comfortably within a budget that covers all of your needs, wants, debt payments and savings. Use our boat loan calculator to see estimated monthly payments, interest costs and total payments.
Payments toward the boat loan — combined with other debt payments and savings — shouldn’t exceed more than 20% of your income.
What is the true cost of boat ownership? Buying a boat isn’t your only new expense. Additional costs include fuel, licenses, insurance, storage, maintenance and repairs. Boats also depreciate over time, just like a car.
Are there loan prepayment penalties? Avoid boat loans that charge penalties for paying off the loan before the term ends.
Does my boat have resale value? It’s smart to buy a boat that is both affordable and popular, as this can attract potential buyers if you decide to sell it and pay off your loan at any point in the future.
Alternatives to taking a boat loan
If you can’t afford to buy a boat today, or you’re not quite ready to make the commitment, here are some alternatives.
Save up for the purchase. Consider holding off and starting a savings plan for your boat. You may be able to negotiate a cheaper price by paying with cash, and you’ll avoid paying interest on a loan.
Join a boat club. For a one-time fee and ongoing monthly or annual dues, boat clubs provide access to a fleet of boats for their members and guests.
Consider peer-to-peer rentals. Similar to renting a house on Airbnb, you can temporarily rent someone’s boat through a peer-to-peer rental marketplace, such as Boatsetter or GetMyBoat.
Be sure to read our post about boat financing to learn more about some of the finer points of financing a boat. And if any questions at all, don’t hesitate to contact us or call us at (213) 260-0155.