Is a Personal Loan the Best Way to Finance a Boat?

In the year of social distancing, many people apparently figured it was a good time to buy a boat. New powerboat sales soared 12% in 2020, hitting their highest levels in 13 years, according to the National Marine Manufacturers Association. But with the average price of a new aluminum boat package at $36,000, many buyers likely needed a loan.

Personal loans — which can be used to buy just about anything — are one option to secure a boat purchase. There are other options, too, including getting a marine loan with the boat secured as collateral. Here’s a look at what it takes to get a loan to buy a boat and how to find one that works best for you.

How Can You Get a Boat Loan?

Financing a boat is similar to buying a car. You could walk into a showroom, pick out what you’d like, qualify for a loan and, in many cases, leave with the boat soon after.

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 size of the loan and other factors, says John Haymond, president of the National Marine Lenders Association.

There are three primary ways to get financing:

Secured loan through a dealer. A boat dealer might partner with a specific loan company for all purchases or let you choose among a few of them. One of the main advantages in working with a dealer includes the possibility of a special financing deal through the boat manufacturer, such as lower interest rates for an introductory period. You might also be able to include an extended warranty in your financing.

[Read: Best Personal Loans.]

Secured loan directly with a lender. As you would with an auto loan, you can approach a lender before you finalize the boat purchase and get preapproval for a loan based on the price of the boat you’re likely to buy. You could get a fixed-rate installment loan for a designated number of years, take out a variable-rate loan, or choose a balloon payment you time to come due when you’re ready to sell the boat. Secured boat loans are available from banks, credit unions and online lenders. Some lenders have teams that specialize in marine sales, and you can also look for online boat loan brokers.

“Historically, lenders have almost always wanted collateral when making large-dollar loans,” says Todd Nelson, senior vice president at online lender LightStream. “That way if a borrower cannot pay, they can recover the asset and sell it to offset their losses on the loan.”

You can also get secured financing without the boat as collateral if you take out a home equity loan or use money from a home equity line, or if you get a personal loan that is backed by items of value, such as securities.

“Most of them are secured by the boat loan as collateral itself or another financial source, such as a home equity loan,” Haymond says.

Unsecured financing. If you have a high credit score and a strong income, a personal loan could be an ideal way to purchase a boat. You would just need approval for a loan that could cover the cost of the boat. With a secured loan, lenders will have limitations on the year, make and model of the boats they use for collateral.

“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.”

[Read: Best Home Equity Loans.]

Take These 4 Steps When Applying for a Boat Loan

Make sure your credit and finances are strong. You’ll need a decent credit score to get a boat — at least a 660 FICO score for an unsecured loan, for example, Nelson says. The lender will also check your income, debt-to-income ratio and possibly your net worth. You might need to come up with a down payment if you’re getting a secured loan. Make sure you can afford the extra costs that come with a boat, such as insurance, a travel trailer, gas and maintenance, like winterizing.

Decide what type of boat you need. There are many types and sizes of boats, 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?” Then you’ll want to see how much you can afford and whether you’re better off getting a previously owned boat instead of a new one.

Compare loan offers. You should expect to get the best available interest rate if you have a strong credit score of at least 700; your rate might be higher if your score is less than 700. Rates generally improve as the size of the loan goes up and the term length of the loan goes down. For a secured loan, you might be asked to provide a down payment of 10% or more, and the payment period could go for as long as 20 years for larger loans. Boat loan interest rates are typically in the single digits.

“Make sure you’re getting the right product you want and shop around for rates,” Haymond says.

The interest rates could change based on the type of boat, too. For example, sailboats, powerboats and boats with wood hulls might all have different terms. Also, lenders might only offer marine loans for new boats, or might also finance ones that are only a few years old.

“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 Mortgage Refinance Lenders.]

Finalize the loan. The closing on the loan could be quick and uneventful if you apply for an online unsecured loan and get the money deposited in your account promptly. If you’re working with a dealer, it might be more of a traditional closing where you sign the papers with the dealer’s financial representative. Make sure to check if there are any additional closing costs.

“Do your research upfront to feel empowered and confident in your choice,” Nelson says. “With good credit, you can shop around and choose the loan that meets your needs with the best rates.”

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