Traveling to different places by setting sail on your own boat is an unparalleled experience. However, unless you have saved enough money to buy your dream boat, you will need to take out a boat loan to turn your dream into a reality.
Although it may seem a bit uncommon, some loans specifically cater to acquiring boats. Just like an auto loan, boat loans are a type of loan that allows you to acquire a boat while paying for it in installments. For boat enthusiasts who wish to set sail but have no other means of getting a boat, this loan option can be helpful.
The good news is that you can get a boat loan from online lenders, credit unions, or banks. Plus, the application process is usually fast, and approval is based on your ability to repay and your credit score.
To help you out, here’s how you can finance your dream boat, the things to consider before applying, and what you need to know to own one.
Types of Boat Loans
Boat loans are loans repaid in fixed monthly payments, normally over 2 to 15 years. The loan terms and interest rates differ with every lender, the loan size, your income and credit score, and if the loan is secured or unsecured.
Unsecured Boat Loans
Unsecured boat loans do not require collateral. Without this security, terms on these loans might be shorter, and rates are higher. Even if you default on this type of loan, you will still face repercussions, including wage garnishment and a damaged credit score.
Secured Boat Loans
A secure boat loan uses the boat as collateral. With this backing, rates may be lower, repayment terms are longer, and have higher loan limits. However, the problem is that you may lose your boat once you default on your loan.
This type of loan is recommended for borrowers who are not eligible for unsecured loans. It’s also a great option for borrowers who agree to the risk affiliated with secured loans and want a higher loan amount.
Where To Take Out A Boat Loan
If you are considering taking out a boat loan from various lenders, be sure to use the annual percentage rate of the loan. It includes the fees and interest rate, allowing you to compare payments and costs that meet your budget.
There is a range of boat loan lenders to choose from. Here are some of them:
- Marine Lending Specialists. These financial service companies act as brokers or dealers to help you look for a boat loan. Marine lending specialists obtain funding through third-party sources, like banks.
Boat loans offered by these lenders have similar repayment terms and rates as personal loans. One key advantage of getting a boat loan from marine lending specialists is working with a professional who knows the boating business’s ins and outs.
Here’s the catch: boat loans from marine lenders require at least 20% of the purchase price as down payment and must be secured by the boat.
- Credit Unions. A credit union is a nonprofit lender that can offer lower rates for borrowers with bad or average credit. Credit unions are operated, owned, and created by their participants. Thus, they’re not intended for-profit enterprises that are eligible for tax-exempt status.
- Banks. The US Bank offers secured loans for both used and new boats, including yachts, motorboats, and sailboats. The bank allocates a maximum loan amount of $99,999 for used boats and $150,000 for new boats.
The annual percentage rates range from 5.24% to 8.24% and have a discount rate of half a percent for borrowers who automate their payments via a US Bank checking account.
Additionally, the United Services Automobile Association (USAA) gives its customers secured personal loans for new and used boats, starting at $5,000. For borrowers with stellar credit, APRs start at 5.75%, including a rate discount for direct payments.
- Online Lenders. Online lenders offer competitive rates with flexible terms for unsecured and secured boat loans. What’s more, the loan process is fast and easy. All you need to do is submit a loan application to your chosen online lender. Once submitted, you’ll be notified if your application is approved.
What You Should Know Before Taking Out A Boat Loan
Before you apply for a boat loan, there are several things you need to do and ask yourself. Here are a few of them:
- Does the loan fit into your budget? The monthly payments on a boat loan must fit your budget that covers all of your savings, debt payments, wants, and needs. You will need a boat loan calculator to determine estimated interest costs, monthly payments, and total payments. Moreover, payments on a boat loan must not go beyond 20% of your income.
- Does the boat increase in value in the future? Ideally, you should purchase a boat that’s both popular and affordable. By doing so, when you decide to sell it, potential buyers can see it as desirable, thus, allowing you to repay your loan over time.
- What about loan prepayment penalties? It would be best if you steer clear of loans that charge penalties for repaying the boat loan before the payment term ends.
- What’s the true price of boat ownership? Take note that purchasing a boat is not your only expense. Additional costs include repairs, maintenance, storage, insurance, licenses, and fuel.
Other Options to Taking Out A Boat Loan
When you cannot afford to purchase a boat today or if you are not ready to commit, there are other options you can take.
- Peer-to-peer rentals. Just like renting accommodation on Airbnb, you can temporarily rent a boat via a peer-to-peer rental marketplace, such as GetMyBoat or Boatsetter.
- Consider joining a boat club. Boat clubs offer access to many different boats for their guests and members. With that said, if you’re not ready to commit to a loan, join a boat club for a one-time fee and annual dues.
- Save up. Start a savings plan for your dream boat. Perhaps, you could get a more affordable price by paying with cash. With this method, you can avoid paying large interest rates on a boat loan.
If you love the idea of sailing with your own boat, boat loans can help make that dream a reality. Just like auto loans, boat loans come with fixed loan amounts that you pay with interest over a defined period. However, remember that boats are more costly than a car. Thus, the terms can be longer, and loan amounts can be higher.
Author’s bio: Lauren loves to travel and often combines her great love of travel with her interest in the world of finance. She shares her stories with her readers, often not only suggesting the best destinations but various ways to enjoy them… including camping, RVs, Airbnb’s etc. She loves to help her audience find great deals while making sure their travel plans and leisure activities are protected.