Buying a boat is a dream for boat lovers, but it can remain a dream for many if they don’t get a loan. A boat loan provides you with the financing to purchase a boat without leaving you in a financial crisis. It makes your dream of boat ownership a reality. Boat loans are similar to car loans but with a few differences in the term, rate of interest, and approval criteria. Lenders will make a marine survey before approving the loan. Your boat will be eligible for the loan depending on the age, condition, and type of the boat. Here is a step-by-step guide to help you handle the loan process with confidence and ease.
What is a Boat Loan and How Does it Work?
A boat loan is a personal installment loan used to buy a water vessel, where you borrow a lump sum and repay the principal with interest in monthly installments. It saves you from paying the full price. Generally, the boat acts as collateral security for the loan. If you fail to pay the installments as agreed, the lender can repossess the boat. After completing the repayment, you become the legal owner of the boat.
Repayment terms for the loans depend on various factors, including the value, age, and condition of the boat, and the loan amount. However, the term for a boat loan is always longer than an auto loan. On average, it lasts from 5 to 15 years. The installment amount per month is fixed.
Auto loans are approved without any inspection or survey, but boat loans need a marine survey. The lenders inspect the boat to know about the storage, condition, and maintenance history of the boat.
Types of Boat Loans You Can Choose From
There are several types of boat loans, and each option has its own features, pros, and cons. Understanding all options will help you make the right decision.
Financing Through a Boat Dealer
This is the easiest option because the boat dealers have the experience of handling marine loans, and they have connections with many financial lenders. Dealers act as brokers and help in completing the paperwork. It is a convenient option for first-time buyers to secure loans.
The limitations of this type of loan are that the interest rates and terms are not fixed. Moreover, the loan terms may be shorter when compared to other options.
Getting a Boat Loan From a Bank or Credit Union
This is the traditional way of funding a boat loan. If you are an existing customer of a bank or credit union, and if you have a good credit score, this is a wonderful option. Credit unions give long-term loans at competitive rates of interest.
The main drawback is that the approval criteria are stricter. In the case of credit unions, you should be a member of the union, and the loan amount may not be as large as that of big banks.
Marine Lenders Specializing in Boat Financing
Marine lenders focus only on loans for water vessels. So, they have expertise in vessel valuation and marine surveys. One of their main pluses is the longer term when compared to banks and financial institutions. Quick approval and a smooth process are other pluses. Most of the boat buyers go for this option because of its pluses.
What Can You Finance With a Boat Loan?
A boat loan can be used to buy a wide variety of water vessels, from a pre-owned small sailboat to new luxurious yachts. Commonly eligible water vessels include
- Motor boats like bowrider boats, open day boats, and center console boats
- Fishing boats like trawlers, bass boats, crabbers, dinghies, and drifters
- Pontoon boats
- Sailboats used for racing and cruising
- Yachts, but they are reviewed by the lenders and are subject to size and value limits
Some lenders allow the purchase of accessories like trailers, fuel, sound systems, and services like painting.
How to Prepare Before Applying for a Boat Loan?
Being prepared in advance before applying for a boat loan will give you time to review your finances and understand the process. When the lender sees that you are well prepared and you are financially ready, it will boost the chances of approval of the loan.
Check and Improve Your Credit Score
A credit score plays a vital role in deciding if your loan application will be approved or rejected. Moreover, the interest rates are better, and the term of the loan is longer if you have a high credit score. Most lenders prefer a credit score of 680 for approval and above 700 for better rates. So, you should prepare your credit score by paying bills on time, lowering the DTI ratio, reducing credit card balances, and avoiding new credit inquiries.
Decide on Your Budget and Monthly Repayment Comfort
Prepare a realistic budget. Consider your income, current commitments, and future expenses while preparing the budget. Find out how much you can afford for a monthly payment after setting aside some amount for emergencies and savings. This will relieve you from long-term stress and will make your boat ownership enjoyable.
Plan Your Down Payment
The down payment of your boat loan may range from 10 to 20% of the total purchase price of the boat. A larger down payment will reduce the amount of the loan, interest rates, and monthly repayment. The normal range is 10 to 20%, but 20 to 30% will give you better deals.
Understand Ongoing Ownership Costs
You should understand that boat ownership expenses do not end with the purchase price. You should be ready to bear the ongoing expenses like maintenance, repairs, fuel, insurance, storage, etc. Calculate them in advance to avoid expensive surprises later.
How to Find the Right Lender and Get Pre-Approved
Getting your loan pre-approved is better because it gives you time to find the best terms and settle for them. So, you should choose the right lender after thorough research. Finding the right lender is as important as finding the right boat.
Comparing Loan Offers and Interest Rates
When you compare loan offers, you should check the APR or the Annual Percentage Rate. It is a good comparison tool as it shows the annual cost of borrowing money. You should also compare the loan terms. Compare the APR and the term length to find out the true cost.
Why does Pre-Approval Make Buying a Boat Easier?
A lender gives pre-approval and gives an estimate of the amount of the loan, the rate of interest, and the term period after reviewing your financial information. It gives you a clear idea about the price range that can fix your budget. This will help you to find the right lender and give you more confidence to negotiate.
How do Loan Terms Affect Your Total Cost?
Shorter terms increase the monthly payment but will lower the interest rates in the long term. Longer terms will reduce the monthly payments but will increase the overall cost. You should understand this and choose the favorable terms.
Documents You Need to Apply for a Boat Loan
You should have the following documents ready to speed up the process of getting a loan.
Personal and Employment Information
- A government-approved photo ID as proof of your identity
- Salary slips, bank statements, and tax returns as proof of your income
- Employment details as proof of your stability
Financial and Asset Details
- Bank statements showing the details of existing loans
- Details of assets, including property, savings, and investments
Boat Details Required by the Lender
- Date of manufacture and model of the boat
- HIN or Hull Identification Number
- Invoice
- Details of valuation based on surveys
Purchase agreement and marine survey
A copy of the purchase agreement signed by the seller and a report of the marine survey should be kept ready, as the lenders rely on them to ensure the boat is really worth the loan.
How to Finalize and Close Your Boat Loan?
Once your loan is approved, you have entered the final stage. Then you have to follow a few simple steps to close the procedure.
- Review the details in the final approval and check if the details are the same as you discussed.
- Sign the documents to legally confirm your loan agreement
- Then the next step is the release of funds by the seller, which is made directly to the seller
- Go ahead with registration and the lender’s lien recording
- When all these steps are completed, the boat will be handed over to you.
Use a Boat Loan Calculator to Estimate Monthly Payments
A boat loan calculator is used to estimate the monthly payments by applying a formula. This will help you set a realistic budget. The calculators allow you to make adjustments to the variables, such as the loan amount, term, and rate of interest. You will understand how the monthly payments decrease or increase and how the overall cost is affected when you make the changes.
You should use a loan calculator at the early stages of the process. This will help you understand the amount you can afford and approach lenders with a clear idea.
Common Boat Loan Mistakes to Avoid
Be aware of the common mistakes and avoid them to make your buying experience stress-free.
- Applying with too many lenders
- Neglecting credit score and fixing credit issues to improve the score
- Accepting the very first offer without comparing it with other lenders
- Focusing only on the monthly payments and not the term
- Ignoring the ongoing costs
- Skipping the marine survey
- Setting an unrealistic budget
- Incomplete paperwork
Ready to Buy a Boat? Make the Process Simple With SlipStream
Now that you have a clear idea of how boat loans work, you should start exploring the sources from which you can buy a boat. SlipStream is a trusted platform where you can search for boats, compare them, and narrow down your choices. You can do all of them on a single platform.
Make informed decisions through SlipStream that educates you and allows you to explore at your own pace. Move forward in the right direction with SlipStream.
FAQs
What credit score do you need for a boat loan?
Most lenders ask for a credit score of 600 or higher. However, a score of 700+ will get better rates.
How much down payment is required?
It may commonly range from 10 to 20% of the total purchase price of the boat. However, the percentage may vary depending on the age, type, and condition of the boat.
How long can boat loan terms be?
The duration ranges from 5 to 15 years. The repayment period is longer for larger boats of higher value.
Can you get a loan for a used boat?
Yes, you can get a boat loan for a used boat if the condition of the boat is satisfactory to the lender. Lenders will provide the loan after conducting a marine survey.
