It’s safe to say that Americans love boating, as evidenced by the over $49 billion we spend annually on boats, marine products, and services. However, owning a boat comes with a high cost. Aside from the initial purchase price, additional annual expenses such as maintenance, insurance, and other extras can cost several thousand more.
Investing in a boat can be exciting, but before you apply for a loan, keep a few things in mind.
5 factors to consider before applying for a boat loan
Financing is typically the best option when buying a boat. However, there are a few things to think about before requesting a boat loan.
1. Your credit
The majority of boat loans are granted on the basis of credit, so your chances of being approved for the loan are higher the higher your credit score. The amount of interest you pay is also largely determined by your credit score. Even though some lenders might still approve you for a loan even if your credit isn’t perfect, you’ll almost certainly pay a higher interest rate.
You can visit AnnualCreditReport.com to request a free copy of your credit report from each of the three major credit bureaus, so you can make sure your credit is in good shape. These reports help you determine whether you need to establish credit before applying for a loan and how you stand with creditors.
2. Your budget
Make sure your future loan payment will easily fit into your monthly budget, just like you would with any big purchase like a house or a car. Make a list of all of your debts, minimum payment requirements, and other financial commitments before applying for a loan to determine the size of boat you can afford.
Remember that you might be required to provide a down payment ranging from 10 to 30 percent of the entire loan amount, depending on the lender. Use the boat loan calculator on Bankrate if you need assistance with the calculations. This will help you determine how much you can afford and how long the repayment period will be.
3. The type of loan you’ll need
There are secured and unsecured boat loans. Loans that demand an asset be used as collateral in the event that you don’t repay the loan are known as secured loans. Conversely, unsecured loans are granted almost solely on the basis of credit and don’t need any collateral.
A secured loan might be a better choice if your credit needs some improvement. Compared to unsecured loans, secured loans often have lower interest rates and are simpler to qualify for. But, you might forfeit the boat and any other items that were pledged as collateral if you don’t pay back the loan.
Because they can secure the best terms, unsecured loans are best suited for borrowers with good to excellent credit and solid financials, or for borrowers with a co-signer who satisfies these requirements. With an unsecured loan, the lender cannot take your assets if you default on the loan. However, the default will still have an impact on your credit.
4. The total cost of owning a boat
It should not be shocking to learn that the price of the boat is only one factor in this. Ten percent of the boat’s total cost is allocated to annual maintenance costs. That reduces to $4,000 a year if your boat costs $40,000.
There will also be insurance costs. Boat insurance rates are about 1.5 percent of the boat’s insured value.
Other expenses to consider are:
- Dockage fees.
- Storage fees.
5. How often you’ll use the boat
The average American boat is only used 54 days out of the year, according to the U.S. Coast Guard.
Should you consider utilizing your boat sporadically during the summer or during Spring Break, incurring debt totaling thousands of dollars on top of other costs might not be worth it.
If you don’t intend to use the boat all year round, you might be better off renting it for special occasions. Renting won’t break the bank, but it will save you money on other fees like maintenance and insurance.
Where you can get your boat loan
Banks and credit unions, both local and national, can provide you with a boat loan. If you would rather submit your application online, you can also obtain a boat loan from particular online lenders.
Additionally, lenders that specialize in financing for boats can be found through dealerships. You might be able to visit a brick-and-mortar lender, depending on where you live.
How to qualify for a boat loan
You must fulfill the lender’s eligibility requirements, just like you would for any other loan. However, compared to other financing options, boat loans might be more difficult to get approved for. Not only must you fulfill the financial requirements, but your boat might also need to meet additional requirements related to age and condition.
Most boat loans require good to excellent credit, a consistent, reliable source of income, and a low debt-to-income (DTI) ratio in order to be approved. When applying, be sure to consider your financial situation and the lender’s requirements as these particular factors will be used to assess your creditworthiness.
For older boats, financing could be more difficult to come by, particularly if you’re considering secured options. You might need to look into getting an unsecured option with a co-signer if your credit isn’t the best and the boat is an older model.
Prior to submitting an application for a loan, compare lenders. Prequalification is a service provided by some lenders that lets you see what you might be qualified for without affecting your credit. To make sure you get the best terms possible for your circumstances, compare quotes from several lenders.