How to get a boat loan and whether you should

Key points

• Boat loans are similar to auto loans with the vehicle serving as collateral but you may need to borrow more to finance a boat.
• You can find boat loans through banks, credit unions, marine finance companies and even boat dealers.
• Take your time to consider how a boat loan fits in with your financial plan and whether it’s right for you.

A boat loan is a type of vehicle loan that functions similarly to an auto loan. “You’ll experience a comparable application and approval procedure,” says Lyle Solomon, principal attorney at Oak View Law Group, a debt relief firm. “Your boat loan will be determined by the market value of the boat, much like an auto loan.”

Like when buying a car, though, borrowing is often best avoided. Before financing your desired watercraft with a boat loan, you might consider budgeting and saving up or taking out a personal loan or home equity loan.

If you opt for a boat loan, however, it’s important to understand how they work, how they can impact your financial well-being and where to find them.

How do boat loans work?

For boat loans, you’ll typically need to make a down payment between 10% and 20% of the purchase price, though some may offer no down payment as an incentive. Once you’ve completed the purchase, you’ll make fixed monthly installments over a set repayment term.

Traditional boat loans are typically secured, which means that you use the boat as collateral. This often results in a lower interest rate, but if you miss payments, the lender may repossess the boat.

In addition to a traditional boat loan, prospective buyers can also utilize a personal loan or a home equity loan to finance their purchase:

• Personal loans: These loans are usually unsecured, so you don’t have to worry about repossession, but they also typically come with shorter repayment terms and higher interest rates than secured boat loans.
• Home equity loans: Home equity loans typically come with low-interest rates because you’re using your house as collateral. However, they can also charge high closing costs, and if you can’t repay a debt, the lender may foreclose on your home.

Typical boat loan terms

Boat loan terms can vary based on the lender, the boat and your creditworthiness. With that said, typical boat loan terms can range from 4 to 20 years. That’s much longer than the standard auto loan because boats can cost much more than a car. It’s also a lot longer than the repayment term with a personal loan, which can go as long as seven years with some lenders.

As far as interest rates go, the average boat loan terms in mid-2022 typically started at 5% to 7% APR for buyers with the best credit. However, your terms will depend on the lender, your creditworthiness, the boat itself, how much you’re borrowing and the down payment.

As you shop around for a boat, it’s important to run the numbers on what a loan would cost you in terms of monthly payments and total interest charges.

“Also, don’t forget to factor ownership costs into your entire boat budget,” says Solomon. Maintenance, a trailer, boat insurance, storage expenses, marina fees, equipment and accessories and licenses can all add to your costs of ownership.

Where to find boat loans

If you’ve decided that a boat loan is right for you, you can find one through various lenders, including banks, credit unions, marine finance companies and even boat dealers. Here are just a few examples of reputable options to consider:

• Truist
• U.S. Bank
• Bank of the West
• Trident Funding

For more options, you can visit the National Marine Lenders Association website. As with any major financial decision, it’s important to take your time to shop around and compare terms from multiple lenders, as well as different types of loans, before you settle on one.

Strategies to avoid boat loans

If you’re concerned that a boat loan could be too expensive, it may be a good idea to take a step back and evaluate other options.

“Most people who own cars do so out of necessity because they need them for commuting, going to the grocery store or school,” says Solomon. “In contrast, owning a boat is regarded as a luxury because, apart from rare exceptions, most individuals do not require one.”

Here are some ways you can potentially avoid a boat loan:

• Save up: It may take some time, but saving up for a boat can help you avoid the financing costs of a boat loan. You might make room within your budget to set a monthly savings goal.
• Buy a less expensive boat: While you may have your eye on a shiny new watercraft, it might make sense to wait until it’s more affordable for you. While you wait, a less expensive used boat may still do the trick.
• Lease instead of buy: As with car leases, boat leases may come with lower monthly payments than a boat loan. But you’ll want to consider potential restrictions or limitations before moving forward.
• Rent instead of buy: You may have dreams of being on the water regularly once you have a boat of your own. But it may make sense to rent a few times to get an idea of how often you’ll actually use a boat to determine if it’s the right fit.

Frequently asked questions (FAQs)