It is that time of year when people start thinking about getting out on the water. For some of you, that means buying your first boat. While for others, that means buying another one. The decision to add a new or used boat to your vehicle lineup is a big one. Even for the most knowledgeable boat buyers.
Boats, like many other recreational vehicles, can be incredibly expensive leisure items. Especially when you add the cost of a trailer, fuel, moorage, insurance, and other equipment needed for your desired experience. This can create the need to find the right type of financing.
Boat financing options are similar to those available for cars and trucks, but not every financing solution fits every boat buyer. Here are five of the most common ways to finance your next sailboat, sport motorboat, pontoon boat, fishing boat, jetboat, yacht, or other type of watercraft, along with the pros and cons of each.
1. Obtain a Boat Loan from a Bank or Credit Union
Just as banks and credit unions offer conventional vehicle financing options, many of these institutions also provide loans specific to boats. Most boat loans offered through these traditional financial institutions offer fixed repayment, both in terms of the interest rate and monthly amount due, making it easy to budget for your new or used boat purchase over time.
The main difference between boat lending and traditional vehicle loans is longer repayment periods. Because boat purchases can be a significant expense, and not typically a person’s primary vehicle, credit unions and banks offer extended repayment terms as long as 15 years.
A good place to start looking is at your local bank or credit union. Or one you already do business with. Some of these institutions even offer up to 100% financing. If the company doesn’t offer loans specifically for boats, ask about their personal loan and line of credit options. You can find more details about those two borrowing options down further in this article.
The amount offered, interest rate, and other repayment terms depend on the creditworthiness, income, and debt of the applicant.
2. Utilize Boat Dealership Financing
If you are looking for convenience in securing boat financing and are not buying from a private seller, it may be beneficial to check with the dealer selling the boat. Dealer boat loans are like loans made available through car dealerships in that the application, the underwriting, and the funding are all done in-house. This means there is no need to leave the dealership to finalize the specifics and complete the boat loan.
However, dealer loans for boat purchases may provide less flexible repayment terms and an overall higher annual percentage rate (APR). This could be due to the dealer getting a kickback from the underlying lender that gets discreetly added to your loan or the dealer charging a fee for originating the loan. And sometimes the finance department can find a better deal than you would elsewhere, keeping your total costs lower.
As with other boat loans, dealer loan availability, the down payment amount (usually 10-30% of the total cost), and other terms received are primarily based on the income, debt, credit score, and credit history of the borrower. Some in-house dealers that work with a network of lenders may be more flexible in their ability to lend to individuals with less than perfect credit and accept stated income rather than verifying your income.
3. Finance a Boat Using Home Equity
Individuals who own their home and have access to equity in their property or properties may qualify for one of many home equity lending products. Some carry a lower interest rate and offer more flexible repayment terms than other boat financing options, but each will likely take a week or two longer to obtain than other methods.
Home Equity Loan, Line of Credit, Cash-Out Refinance Loan
Financing a new or used boat purchase may be done through a home equity loan, a home equity line of credit (HELOC), or a cash-out refinance loan. Each option includes plenty of benefits, such as low interest rates and up to a 30-year repayment period. But you must own a home or another property type and have equity to spare to qualify.
– Home Equity Loans & Lines of Credit
With a home equity loan and a HELOC, the lender allows you to borrow up to roughly 85% of the current value of your home to be used however you want. If you already have a first mortgage balance that equals 20% of the value of your home, you could potentially borrow another 65% of the total value of the property as a line-of-credit or second mortgage.
Home equity loans are typically fixed-rate loans with a set monthly payment, while home equity lines of credit usually have a variable APR. Both could have closing costs, depending on the lender, and HELOCs are more likely to have an annual fee.
If you search around you can usually find a home equity loan or HELOC offer with little to no upfront fees. However, these lenders might charge you more in other ways, such as a higher annual percentage rate or an increased principal balance to offset the reduced fees.
– Cash-Out Refinance Loan
Another way to take advantage of home equity to buy a boat is by refinancing your current home mortgage loan. The process of obtaining a cash-out refinance loan is similar to that of a home equity loan and line of credit but may be easier for people with only fair credit to acquire.
One of the main advantages of using a cash-out refinance loan to buy a boat is the ability to reduce the APR on your current home mortgage balance too. For example, if you are paying 8% on your mortgage loan and the current market rate is around 7%, you could refinance your mortgage loan to the lower 7% interest rate.
In this case, you would be refinancing for more than you currently owe and receive cash for the difference between that and the new mortgage loan. That cash can now be used to buy a boat at a low 7% APR too. However, you will generally have to pay 2-6 percent of the total loan amount in closing costs to obtain a cash-out refinance loan.
You may be able to find home refinance loan offers with low to no upfront fees, but like a home equity loan or line of credit, the lender might work those fees into the loan through a higher principal balance or APR.
You can qualify for a cash-out refinance loan on a house, condominium, or another type of real property, assuming there are no other liens, you have enough equity to take additional cash out, and your credit and debt-to-income ratio (DTI) matches the mortgage lender’s requirements.
Home Equity Agreement (HEA)
A home equity sharing agreement is another option for purchasing a boat. Unlike home equity loans and HELOCs, a typical HEA allows you to receive money for a percentage of the sales price of your home when you sell it sometime in the future without paying interest on a loan.
Like home equity loans and lines of credit, a home equity agreement generally requires closing costs to be paid upfront or deducted from the proceeds. However, no additional funds are needed to close the transaction, and you will not owe any other money until you sell the home.
A home equity agreement is best for people with a bad credit score or who do not have money to put down on a boat. It will likely take a few weeks to a couple of months to complete the transaction. The HEA company will need to go through a handful of steps to fully evaluate the property to determine its value and available equity before offering you a contract for funds.
4. Secure a Personal Loan to Buy a Boat
An unsecured personal loan can be a practical option for financing an inexpensive boat. Credit unions, banks, and online lenders offer the best personal loans for a boat to individuals without imposing strict restrictions on how the funds may be used. You can use the money borrowed to pay for boating expenses such as the boat itself, a trailer, license and registration, lifejackets, and other equipment.
Personal loans are great because they don’t require you to come up with a down payment, the interest rate will be lower than most credit cards, and you don’t have to use your home or the boat as collateral to secure the loan.
However, there is generally an origination fee of 1-10% of the loan amount charged to originate a personal loan. This is usually worked into the total loan amount to be paid back each month, and the fee amount might depend on whether you have poor, fair, good, or excellent credit.
Many businesses allow people with all types of credit to request a personal loan for a boat up to $50,000, with some lenders providing personal loans up to $100,000 or more for highly qualified borrowers. The repayment period for a personal loan is typically 2 to 7 years. Your rate, fees, and other terms may be determined by your creditworthiness, debt, and income.
Top Personal Loans for a Boat
*See advertiser websites for a fully updated list of conditions, terms, rates, and fees.
5. Purchase a Boat with a Credit Card
As a final resort, boat financing may be done using plastic. Credit cards offer a simple way to purchase a new or used boat from both dealers and private sellers that accept credit cards. Some credit card companies even send promotional balance transfer offers that allow you to purchase a boat at a reduced rate using a convenience check. However, there are numerous downsides to taking this route.
Because credit cards do not often supply a high enough limit to pay for a boat in full, borrowers may have to utilize multiple credit cards or additional financing options to buy a new or used boat. Credit cards typically have much higher long-term interest rates than other top boat financing options, making them a costly alternative to boat loans or home equity lending products.
However, if you can obtain a credit card with a promotional APR and use it to buy a boat, and then pay it off within the promotional period, it could be a worthwhile option for you.
Final Thoughts on How to Finance a Boat
Although boats can be expensive, buying a small or large boat that suits your needs can be achievable. There are a plethora of lending options to choose from, even if you don’t have that much cash set aside in a savings or checking account. Borrowers with strong credit, a reliable job, and a reasonable debt-to-income ratio will have decent choices.
Boat loans from top dealers, credit unions, and banks offer generous terms that make boat ownership more affordable than many think. Homeowners with plenty of equity and great credit will have the most options afforded to them. Credit cards may be a possibility for smaller boat purchases, but it is necessary to understand the limitations and the full cost of buying a boat this way.
When borrowing money for your boat purchase, don’t forget to calculate for items such as sales tax, title, registration, and other equipment. Also, speak to a tax professional to explore potential money-saving opportunities on your taxes. As with any major purchase, there will be tax implications, and potentially some deductions to take advantage of.
I hope you found this article discussing the “best ways to finance a boat” helpful. If you have a question, personal tip, or another comment, please don’t hesitate to use the Comments section below. Happy boating!
