If open waters call and you’re considering a boat purchase, there are a few steps between your desires and setting sail. Figuring out what kind of boat you want is one decision. Figuring out how to pay for your dream boat is another.
Personal loans — which you can use to buy almost anything — are one option to secure a boat purchase. You also have other options, including marine loans that use the boat as collateral. Whichever you choose, the best financing option is one that offers smooth sailing for your finances.
How to Finance a Boat: 3 Loan Options
Buying a boat is similar to buying a car. You could walk into a showroom, pick out what you like, qualify for a loan and leave with the boat soon after.
When financing a boat, a buyer with excellent credit “could get approved pretty much on the spot and leave the dealership with the boat the same day,” depending on the loan size and other factors, says John Haymond, former president of the National Marine Lenders Association who is now director of business development and senior vice president for Medallion Bank.
But before you take that boat home, it helps to know about the three main financing options for boat purchases.
[Read: Best Personal Loans.]
Secured Loan Through a Dealer
Boat dealers typically have financing relationships with marine lenders, including boat manufacturers, according to the NMLA. When you use a dealer, you’ll take out a secured loan
that uses the boat as collateral.
“Historically, lenders have almost always wanted collateral when making large-dollar loans,” says Todd Nelson, head of consumer and small business bank partnerships at Truist Bank. “That way, if a borrower cannot pay, they can recover the asset and sell it to offset their losses on the loan.”
Since lenders can take back the boat if you default on payments, a secured boat loan can have a lower interest rate than an unsecured loan.
A secured boat loan through a dealer may offer perks beyond lower interest rates. For example, you could access special financing deals through the boat manufacturer, including promotional interest rate offers and delayed first payments. You might also be able to include an extended warranty in your loan.
Secured Loan Directly With a Lender
Instead of using a boat dealer’s financing resources, you can come to the table with your own lender. Through this route, you’ll choose a lender and get preapproved for a secured loan based on the price of the boat you want to buy.
You can find secured boat loans through banks, credit unions, online boat loan brokers and online lenders. You may also be able to get secured financing without using your boat as collateral with a home equity loan,home equity line of credit or secured personal loan.
[Read: Best Online Loans]
Unsecured Financing
If you have a high credit score and a strong income, an unsecured personal loan could be an ideal way to finance a boat.
“Unsecured lenders are underwriting the borrower, not the collateral,” Nelson says. “That makes the application and funding process easier, as an unsecured loan can be used to purchase any boat from any seller.”
You can use a personal loan for nearly any purpose, while secured boat loans may have restrictions on the boat type and age. As a result, a personal loan could give you more flexibility in the make and model year of the boat you buy. Some personal lenders offer loans of up to $100,000.
“If you’re planning to spend less than $100,000 on a boat, an unsecured loan will be easier and offer more flexibility, as a borrower can buy any boat from any seller anywhere,” Nelson says. “Larger loan amounts may require collateral, so a secured loan may be the only option available for bigger boats.”
[Read: Best Low-Interest Personal Loans]
How to Finance a Boat in 4 Steps
Make Sure Your Credit and Finances Are Strong
can help you access a lower interest rate on a boat loan. Your lender will also consider factors such as your income and debt-to-income ratio.
You might need to come up with a down payment if you’re getting a secured loan. If you’re using a secured loan where the boat is collateral, your lender will take steps to ensure that the boat’s purchase price is in line with market value. This information can help the lender get the loan-to-value ratio, which is the amount you are borrowing compared to the boat’s fair market value. Sometimes, a down payment can help decrease the LTV and move the approval process along.
Make sure you can afford the extra costs that come with owning a boat, such as insurance, a travel trailer, gas and maintenance, including winterizing.
[Personal Loans for Debt Consolidation: Calculate Your Monthly Payment]
Decide What Type of Boat You Want
Boats range in size and type, from modest fishing boats to million-dollar yachts. “Know what you’re using it for,” Haymond says. “Are you going to be fishing with it, water skiing or cruising around the lake?” Knowing your preferences can help tailor your search and create a realistic budget.
Compare Loan Offers
You’ll likely want to compare offers from multiple lenders to ensure you get the best financing deal.
If you’re buying a boat through a dealer, its financing team can help you compare offers from partner lenders and manufacturers. On the other hand, if you’re using an unsecured personal loan, many lenders let you check terms without impacting your credit score. Lenders use a soft credit pull to show you terms you may qualify for based on your basic credit information and a short application.
Since lenders may offer different terms — including fixed and variable rates, balloon payment options, and a variety of repayment terms and monthly payments — you can use the loan comparison stage to find the boat financing option that makes the most sense for your finances and boat ownership goals.
[Personal Loan vs. Home Equity Loan: Which Is Better?]
Finalize the Loan
Once you’ve chosen your loan and gotten approved, it’s time to seal the deal. Closing your boat loan could be a simple online process or a more formal one where you sign papers in person at the dealership.
As with any loan, reviewing everything you sign is important to ensure that the loan’s annual percentage rate, term length, monthly payment and other features match your expectations. The closing process is also a smart time to make sure that any additional accessories, warranties or add-ons you requested are included in the loan and that you’ve fulfilled the lender’s insurance requirements for your new boat.
When all the details are squared away, it’s time to hit the water. But before you pull away from the dock or launch your boat, consider setting your monthly boat loan payments on autopilot. Using autopay is one of the easiest ways to make sure your payments are on time, every time.
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How to Finance a Boat originally appeared on usnews.com
Update 04/17/24: This story was published at an earlier date and has been updated with new information.
