Are you considering the idea of owning a boat? Boats offer a luxurious and versatile experience for different activities and occasions. We’ve been getting questions like “How long can you finance a boat”, and “What do I need to know about boat financing”, to answer your questions we’ll explain further below.
How Long Can You Finance a Boat?
The world of boat financing comes with a lot of options, each having its own terms. So, before you go on about getting your documents and making your way to a boat financing institution, it’s essential to how to go about boat financing in general.
It’s worth noting that there are boat financiers who offer friendly terms that extend loan payments from 10 to 20 years. The borrowing amounts can vary significantly, depending on the type of boat you can buy and whether it’s new or used.
Generally, many lenders provide around $5,000 – $10,000, while a few may lend as high as $5 million, particularly when it comes to buying yachts.
Before taking out loan application forms, take some time to consider the type of boat you desire and what you can comfortably afford. Keep in mind that longer loan terms generally come with higher interest rates compared to shorter terms.
So, how exactly do boat loans work? The boat loan amount you qualify for is based on factors such as your income, existing debts, and credit standing. Remember that your Social Security Number (SSN) will be required by the lender during the application process. Additionally, you’ll need to provide details about the specific vessel you intend to purchase, as well as documentation of your income.
Let’s delve into boat loan terms
The duration it’ll take to repay your boat loan depends on your monthly payment capacity and the down payment you’re willing to make. Generally, boat loan terms range between 10 and 20 years. When you’re seeking a boat loan, you are to expect the following:
Most available lenders typically require a down payment ranging from 10% to 20% of the boat’s cost. However, there are exceptions where certain lenders do not demand down payments. If this is a key factor for you, you can explore options with such lenders to make some transactions.
The Annual Percentage Rate (APR) for loan interest usually falls within the range of 6% to 7% for individuals with high credit scores. This fixed annual percentage rate helps with budgeting. It’s important to note that APR can vary based on the type of boat you’re eyeing.
Lower credit scores typically result in higher APRs. Most lenders prefer borrowers with a credit score of 700 or above, although a few may consider those with scores of 600. Be sure to do your calculations right before you choose.
Lenders often prefer financing boats that are under 20 years old. If the boat you’re interested in exceeds this age limit, you might need to explore alternative financing options.
This is different from down payments, there are upfront fees to consider, including origination fees, application fees, processing fees, and closing costs.
These expenses can accumulate, so it’s essential to understand the full extent of these costs and make them fit into your budget. Additionally, inquire about any potential late fees or penalties for missed payments from the lender.
Factors that influence boat loan terms
For instance, increasing your loan duration can impact the interest rates. Similarly, making a larger down payment might lead to a lower interest rate which is a good thing to try in order to pay less unnecessary costs. Lenders also consider:
Age of the boat (if you consider a used boat)
The age of the boat significantly impacts loan terms. Normally, new boats generally come with longer loan terms compared to used ones. As we mentioned earlier, most lenders have a maximum age for the boats they finance, while the average will not exceed 20 years.
Different boat models come with different costs, which lenders take into account when financing. Some lenders categorize powerboats together, while others focus on specific features such as high-performance or wooden hull boats. Sailboats and powerboats might be treated as different categories by certain lenders based on their reasons.
Also, you must note that liveaboards is different from all other types of boat, it is rare to get a loan offer for liveaboards boats.
The loan amount you seek will have an effect on your repayment period. Larger loan amounts typically result in longer loan terms, but most lenders have minimum borrowing thresholds for specific loan terms.
Boat Loan Types
Moving on to boat loan types, there are four primary categories: variable rate, fixed rate, unsecured, and secured loans. Here’s a breakdown:
Variable Rate vs. Fixed Rate Loans
Variable loan interest rates change based on market conditions, while fixed-rate loans maintain a consistent APR throughout the loan duration irrespective of the market.
Fixed-rate loans are generally preferable for boat buyers because of their financial planning benefits and are more cost-effective than variable-rate loans.
Unsecured vs. Secured Loans
Unsecured loans are the kind of loans that do not require collateral, whereas secured loans need assets as collateral (loan security).
For instance, you can use the boat itself as collateral for a secured loan. Keep in mind that failing to repay a secured loan could lead to the lender repossessing the boat.
Unsecured loans are typically more expensive due to the lack of collateral, prompting most lenders to lean towards secured options.
Finding a boat loan?
Now, let’s explore where you can find a boat loan. With numerous boat financiers available, it’s important to navigate through your options thoughtfully. Here are some potential sources to secure a boat loan of your choice:
Online lenders, credit unions, and banks
Many online lenders are ready to extend you a loan to buy your boat. One good example is Boatus.com, where you can find lenders who offer loans at interest rates as low as 5-6% APR.
If you are a customer of a credit union or bank, you can also ask them to help you buy a boat. Lenders will normally check your source of income, level of savings, and credit score before lending you more.
Certain boat dealers offer in-house financing, streamlining the process by combining the financing and boat purchase in one place. While dealer financing comes with the convenience of a unified transaction, it might involve higher costs due to added financing charges.
There is an opportunity to get incentives, including free accessories as a bonus.
Marine brokers are especially helpful for larger or used boats. They act as intermediaries, working in your best interest to find the right boat for you, helping you negotiate with sellers, and facilitating the buying process, even going as far as striking a good deal with the lender.
These brokers typically charge a commission, of around 10% of the transaction value. If you have the budget, you can try using this option as it saves you time and stress.
Other Financing Methods
If traditional loans aren’t suitable for you, there are alternative options to consider, for buying yourself a boat. This includes:
Home Lines of Credit or Home Equity Loans
These secured loans use your home as collateral, offering competitive rates. They are offered as fixed-rate loans, with their rates adjusted after setting duration (within the range of 5 to 10 years).
However, there’s a risk of losing your home if you’re unable to repay the loan before due, it is a risky decision don’t you think? But it all depends on your point of view.
Depending on your preferred source of loan, banks, credit unions, and lenders provide personal loans, which are typically unsecured. They can be a solution if you don’t want to risk collateral, although the interest rates tend to be higher because you take all the responsibilities till you get approved, the advantage is you won’t be losing your properties.
Pay in cash
If you have the funds available, paying for the boat upfront can remove the need for a loan altogether.
Since you now have a comprehensive understanding of boat financing, you can proceed by choosing the most suitable lender for you. Seeking advice from friends or family members who have experience in buying boats can also provide valuable insights during your decision-making process.
I hope you have fully gotten your answer to “How long can you finance a boat” and where you can get a boat loan, it is important that you do thorough research before choosing a loan option.