Why rent or lease a boat when you can easily buy your very own? Cheap fuel costs, low interest rates, a wide range of boat models, and plentiful boat lenders contribute to the increase in boat ownership in recent years.
Owning a boat is a worthwhile investment – one that you will never regret making especially if you’re fond of cruising and travelling by water.
Like residential properties and vehicles, buying a boat and paying in full is beyond our reach. The good news is that you can take advantage of boat financing options to get you closer to being a full-fledged boat owner.
In this guide, we’ll teach you everything you need to know about boat financing. We will also answer some of the most common questions related to loan terms and related topics.
Table of Contents
The Basics of Boat Financing
In this day and age, the average new boat loan starts at $200,000. What’s more surprising is that the majority of people who go for boat financing apply for larger loans due to the inherent high purchase price of newer boat models.
Marine lending is not only limited to national and local banks, as other financial institutions, including credit union, are starting to offer boat loans after the great recession in 2008. Given all these conditions, it’s high time to consider finally buying that boat that you’ve always wanted.
In essence, a boat loan works similarly to auto loans that we have today. Depending on various factors, a lender will determine the loan terms that include the specific loan amount that a borrower needs to pay plus interest over a fixed number of years.
Different Boat Loan Types
A boat loan can be backed by collateral or otherwise. A secured boat alone will use the boat itself as collateral or a form of repayment in case a borrower defaults or break the loan term. It is characterized by lower interest rates and lower monthly payments.
Like traditional loans, unsecured boat loans may also be approved, but with higher interest, which translates to higher monthly payments. There are also lenders that offer non-personal loans such as home equity loans where a borrower’s home will stand as collateral.
Finally, subprime boat financing is where borrowers are required to make a huge down payment and possess low debt to income ratio in order to qualify. Before you get a boat loan, consider other long-term expenditures and other boat-related major purchases such as parts, accessories, maintenance, storage, boat insurance, and fuel costs, to name a few.
Other factors that influence the boat loan amount include the type of boat loan you choose (secured or unsecured), specific loan terms, down payment, and credit score. The condition of the boat, whether it is a new or used boat is also used in determining the loan amount approved by lenders.
How many years can you finance a boat?
Financing Variables
Simply put, the loan term will depend on your individual boat purchase. Lenders such as banks and credit unions offer personal loan terms up to 20-years for brand-new and boats in good working condition.
Variables such as boat age, features, and manufacturer also play a role in determining the loan amount and how long can you finance the boat.
It is also worth noting that the loan term length you pick for your financing application has a direct influence on other elements of your personal loan. If you decide to double the recommended loan term, the bank will most likely impose a higher interest rate or require you to pay a larger down payment.
Loan Size
Similar to financing a home or car, your desired loan size will determine the lender’s willingness to stretch the loan. Simply put, a large loan translates to longer periods of payment.
Also bear in mind that many lenders have their respective set of maximum and minimum loan amounts for specific term periods. This means that some banks and credit unions are inflexible to a more customized boat financing option.
A longer loan term doesn’t mean a more manageable payment term. You need to consider additional costs that are factored in for longer boat financing. There are cases wherein smaller monthly payments is worth more than saving money for the long haul.
At the end of the day, it all depends on your financial capability and security, as well as your outlook towards your boat purchase.
Boat Type
Most modern powerboats are grouped in a single category while some lenders might treat certain types of boat differently. Here are boat types that lenders may treat differently during assessment and evaluation of loan terms:
- Multi-hull boats or pontoons
- Boats that feature wooden hills
- High-performance boats
- Sailboats
Boat Age
Boat age has a huge impact on the length of boat financing. Simply put, newer boats translate to longer loan terms. A lot of lending institutions identify have established caps on how old a boat should be to be approved of financing. There are also lenders that only handle boat financing for new units.
If you are looking to buy a second-hand boat, you need to bear in mind that you may need to furnish additional loan requirements to qualify. For instance, some lenders may set a slightly higher interest rate or set highly minimal loan amounts for boat models that were built before a specific year.
Definitive guidelines were established by marine finance companies when dealing with older boats. Banks and credit unions may fund major purchases for older, high-quality boats but not cheaper mid-range or low-quality boats.
For example, you may get boat financing approved for a used $80,000 boat from a world-class boat manufacturer but not for a cheaper second-hand $30,000 boat of similar size and model. Lenders automatically assume high-value boats are of better quality; hence will last for many years to come.
Loan amounts will also be influenced by your credit score and the amount of down payment a borrower is willing to pay upfront. Oftentimes, old boat purchases can be a little more tedious, given you will need to furnish tax records and income statements as part of the pre-approval process.
Additionally, when you apply for financing for 20-year old boats or older, lenders will assess premiums on top of borrowing expenditures. With this in mind, expect to pay a higher upfront cost if you wish to purchase a boat that is 21 years or older.
Living on a Boat
Getting a boat loan approved for borrowers who wish to live on their boat full-time may prove to be a challenging undertaking.
As boat life is still considered a non-traditional or alternative lifestyle, there are many things that need to be taken into consideration, including homeownership laws, escrow accounts, insurance, and many more. Due to its complex nature, many lenders do not offer this type of boat financing option.
How hard is it to get financed for a boat?
Boat financing shares similarities with traditional personal loan types such as vehicle and home mortgage loans. You need to complete the loan application for underwriting purposes.
Lenders will ask for paperwork to be submitted, including federal tax returns, proof of assets, and other financial documents that show your ability to pay interest and loan amounts over a period of time.
Similar to vehicle loans, many lenders follow a loan-to-value guideline that is based on the book value for used boats and the corresponding value for new boats. To be considered for boat financing, you must meet all underwriting criteria.
Unlike a traditional auto loan, a boat loan is more tedious to process and complete. Once approved, lenders will outline additional requirements that you need to submit before closing paperwork can be submitted and lined up for final evaluation.
During application, you will need to provide basic information such as demographic details, employment information, personal financial statements that enumerate your assets and liabilities. Of course, you also need to provide the information about the boat you are looking to purchase or refinance.
The underwriting process may also include requests to provide non-retirement and retirement assets to conform income and net worth of a borrower, a copy of the sales contract, and comprehensive marine survey reports if a borrower is keen on purchasing a used boat.
How does Credit Score Affect Boat Loans?
There are lenders who are willing to offer boat loans to borrowers with subprime credit. In this case, they will require a down payment and a low debt-to-income ratio for an applicant to qualify for financing.
By rule, borrowers with lower credit scores will be approved for a boat loan but with a slightly higher interest rate than applicants with an excellent credit rating that will be easily approved with lower interest rates and typical boat loan terms.
Do you Need a Marine Survey for Boat Financing?
When you choose to apply for a secured loan, the boat’s value will be a huge factor in the amount you can borrow as well as term length. If you choose to purchase a new boat, it’s imperative that you get a marine survey.
During this procedure, an inspector will assess the vessel and its components, including the trailer, engine, overall condition, and finer details. Additionally, a marine survey will enumerate the repairs needed and evaluate whether a boat is safe to be taken on the water.
Boat Loan Term Reminders
When basic requirements are met by borrowers, a lender will typically approve boat financing up to 10 years. In some cases, those who wish for a boat loan with shorter periods will make payments under 60 months or 5 years. On average, boat financing loan term ranges between eight to 12 years, while long loan term may run between 12 to 15 years.
Many borrowers opt for long term loans as interest rates tend to level out over time. For instance, when borrowers find out that the interest rate in a seven-year boat loan term is going to have the same interest as that of a 10 or 12-year loan term, the majority will automatically choose the longer loan term. This gives buyers a lower monthly payment without having to worry about additional costs in the long run.
Simply put, a longer-term loan makes boat purchases more realistic and attainable even for borrowers on a tight budget. Additionally, this presents them with an opportunity to make additional payments towards their principal instead of interest.
The Value of Boat Financing
In general, boats retain their value longer than land-based vehicles do. They have a slower rate of depreciation compared to sedans, trucks, SUVs, trailer homes, and even smaller watercraft. In terms of resale value, boat prices remain consistently high even a few years after its initial purchase.
This is good news for boat owners who are looking to get a decent trade-in or resale payoff in the event that they decide to sell their boat in the future. It’s also a good thing for buyers who wish to purchase older models either with cash upfront or through financing.
A good example of a boat that holds its value for a long time is the Bennington Pontoon. This type of boat is known for its superiority across all aspects, including materials, engineering, and design. The warranty on this model is transferrable to future owners, making them a good choice for those looking to finance older boats.
Can you finance a boat for 30 years?
You can get approved for bank financing with a loan term length of 30 years if the boat you wish to purchase is of high value. There are also lending institutions that are willing to finance old watercraft of high quality between 25 and 30 years.
In this case, however, expect interest rates to be much higher and bigger down payment requirements, too. Speciality lenders for older charter boats focus on financing pre-owned boats given that over 85 per cent of boats in the country are pre-owned. There is a huge market for used boats, hence boat loans with up to 30-year loan term length are not hard to find.
