Are you dreaming of spending lazy summer days out on the water, but held back by the high cost of buying a boat? Don’t let the price tag dash your sailing hopes just yet. With some smart financing strategies, that dream boat could be yours sooner than you think. This guide will cover all the top options for financing a boat, from loans to credit cards and everything in between. Read on to learn how to finance a boat this year.
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How does boat financing work?
Boat financing works similarly to financing a car or other major purchase. You borrow money upfront to purchase the boat and then pay it back with interest. The boat acts as collateral, meaning the lender can repossess it if you default.
For example, let’s say you want to buy a $30,000 boat. The lender provides the $30,000 upfront after you qualify for the loan. You then pay it back over 5 to 10 years with an interest rate of, for example, 5% plus any fees. The monthly payments make the $30,000 boat purchase much more affordable when spread out over several years.
7 ways to finance a boat
Now that you understand the basics of boat financing, let’s dive into the different options for securing that loan.
1. Boat loans
One of the most popular and straightforward options is getting a dedicated boat loan from a bank, credit union, or online lender. These secured loans use the boat itself as collateral, which allows you to qualify for lower interest rates compared to unsecured options.
Boat loans are best for those with good to excellent credit scores, typically 680+, but lenders prefer loans of 700 or higher. As part of the application process, you must provide details on the boat, your finances, employment, and creditworthiness. Many lenders also require at least a 10-20% down payment.
How to get a boat loan
- Step 1: Research and compare lenders, interest rates, terms, and requirements before applying.
- Step 2: Gather documentation like proof of income, employment, residence, and savings.
- Step 3: Get pre-qualified by having lenders do a soft credit check. This won’t affect your credit score but can give you an idea of the loan amount you can qualify for.
- Step 4: Choose the loan offer with the best rates and terms for your situation.
- Step 5: Apply for the loan and provide any additional documentation to finalize and secure the loan
- Step 6: Get loan approval and buy the boat!
Where to get a boat loan
- Traditional banks: Many major banks like Bank of America, Chase, and Wells Fargo offer boat loans.
- Credit unions: Credit unions can offer lower rates to members.
- Online lenders: Many online lenders provide boat loans nationally and make it easy to compare offers.
2. Personal loans
Personal loans can be used for a variety of purposes, including financing a boat purchase. These unsecured loans don’t require collateral but have higher interest rates as a result. This is in contrast to an auto loan or a boat loan, which is secured by the boat itself.
Personal loans work best for those with good credit who are buying smaller, more affordable boats under $25,000 or so. You could qualify with a credit score of 610 or higher, but a score of 670 or above can increase your chances of qualifying for a lower interest rate.
The advantage of a personal loan is that you can use the funds for any purpose, including a boat purchase. You could also use part of the loan for a boat renovation or another unrelated expense. The disadvantage of personal loans is higher APRs compared to secured boat loans. To get started, you can learn how to get a personal loan or compare the best personal loan rates here.
3. Home equity loans
If you’re a homeowner, taking out a home equity loan or home equity line of credit (HELOC) can be an option for financing a boat. You borrow against the equity you’ve built up in your home, using it as collateral.
With home equity financing, your home itself is used as collateral for the loan. This makes it a secured loan option, similar to a mortgage, allowing for (possibly) much lower interest rates than unsecured loans like personal loans. Typical APRs on home equity products range from 3-8%.
Home equity financing typically offers lower interest rates than other loans, comparable to mortgage rates. However, your home is tied to the loan, so defaulting risks foreclosure. These loans may also have high upfront fees.
To qualify for a home equity loan or HELOC, you’ll usually need a credit score of 620 or higher. Lenders will also evaluate your income, existing debt levels, and available home equity. Most allow borrowing up to 85% of your home’s appraised value minus your remaining mortgage balance.
The advantages of a home equity loan or HELOC are that you may have an easier time qualifying if you have equity in your home and that you could also get a lower interest rate. The disadvantage is that you risk losing the property and will take on additional debt that can delay your mortgage repayment time.
While home equity financing offers low rates, it’s important to consider the risks of putting your home up as collateral for the loan and ensure you have a solid plan for repayment to avoid the danger of foreclosure.
4. Marine financing
Some boat dealers and manufacturers offer their own financing programs called marine financing. It’s the same idea as an auto loan, just for boats.
The advantage of marine loans is convenience. Suppose you’re buying from that particular dealer. You can often get promotional rates or specialty loan terms. However, you’ll have fewer options compared to securing financing elsewhere. Lender credit score criteria vary, but usually, a credit score of 700 or higher increases your chances of loan approval.
5. Credit cards
Those looking to finance a smaller boat under $10,000 or so could use 0% introductory APR credit cards to pay for the purchase interest-free during the promotional period. Even without an introductory offer, if you have the savings ready, using a credit card with a promotional offer could help you earn more points with the boat purchase.
Buying a boat should only be considered if you plan to pay off the balance before the intro APR expires and transitions to a higher ongoing APR. Otherwise, the interest can make this an extremely costly way to finance a boat.
The advantage of buying a boat with a credit card is that it’s convenient. You don’t need to apply for a loan, and you can get 0% APR financing for a set period. However, without a plan to pay off the charge before the high APR takes effect, you could risk paying much more in interest for the loan.
MoneyLion can help you explore a wide variety of credit card options tailored to different needs and preferences.
6. Rent a boat
Renting boats by the hour or day can be an affordable option for those who want to enjoy boating without the long-term costs of ownership. Many marinas, resorts, and boating clubs offer rentals for a daily fee.
While renting a boat does not involve a long-term commitment, it can get expensive if you plan to go frequently boating. It makes sense for casual, occasional use, but buying is cheaper for avid boaters long-term. You typically don’t need a credit check or minimum credit score to rent a boat.
In addition, some locations now offer a boat share agreement that’s more like a long-term rental option. This can be a transition between renting and buying for more avid boaters.
7. Save up and pay in cash
The most straightforward financing method is saving up cash and paying for the boat upfront. This avoids interest charges or loan payments. It also ensures you’re not taking on additional debt for the boat purchase.
Paying cash is ideal if you can afford to save up the full amount. The tradeoff is needing that large lump sum of funds before buying. It may take years to save up enough for more expensive boat models. A high-yield savings account can be a convenient place to stash cash while saving for a boat.
MoneyLion offers a convenient marketplace to compare high-yield savings accounts from our trusted partners that could help grow your money.
Make boat ownership a reality
Owning a boat opens up a new world of fun out on the water. While they can come with a hefty price tag, financing can make that purchase much more achievable. From secured loans to paying cash, there are plenty of boat financing options to fit different budgets and needs. Do your research, explore all the financing paths, and plan to turn your boating dreams into a reality.
FAQ
How long should you finance a boat?
Some experts recommend financing a boat for no longer than 10 to 15 years for a new boat or 5 to 7 years for a used boat. If you can choose a shorter loan term, it can help minimize interest costs.
How old can a boat be to finance?
Boat age limits vary by lender. Many lenders have limits on the age of used boats they’ll finance, typically around 10 to 15 years old at most when you finish paying it off. Lenders usually won’t finance a boat older than 20 years.
How hard is it to get boat financing?
Getting approved for a boat loan requires good credit, typically over 700. However, some loan options, like personal or home equity loans, may have lower credit requirements.
How to sell a boat that is financed?
If you sell a financed boat, you’ll need to pay off any remaining loan balance upon selling the boat. Some lenders may allow you to transfer the loan to the new buyer.
What credit score is needed to buy a boat?
Credit score requirements to buy a boat vary by lender and the financing option you choose. For the best rates on secured boat loans, you’ll want credit scores of 700+. Some lenders may approve borrowers with 650+ scores at higher interest rates.
