Boat loans: Understanding your options

Similar to buying a house, buying a boat can be expensive and require financing. Most buyers need a boat loan to afford one. Boat loan terms vary depending on the borrower’s credit, the loan amount, and the condition of the boat. Keep reading to find out how a boat loan works, how boat loan terms are determined, how to apply for a boat loan, and alternative ways to finance a boat. 

How does a boat loan work?

Boat loans work similarly to mortgages. However, boat loans usually have shorter terms and smaller loan amounts. Boat lenders evaluate the boat’s condition and the borrower’s finances before providing a boat loan. Here’s what you need to know about how boat loans work for most modern powerboats.

Boat requirements

Lenders often limit how much they lend out based on the age of the boat. Most lenders prefer to finance boats that are 10 years old or younger. Although some lenders are willing to finance older boats if they’re exceptionally valuable. These high-value boats would need to be assessed similarly to how a property is appraised. 

Borrower requirements

In addition to the boat’s age, lenders also consider a borrower’s finances. Boat lenders evaluate a borrower’s credit score, credit history, and annual income before approving a boat loan. The minimum credit score needed to finance a boat is usually 680. 

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However, some lenders might accept credit scores as low as 600 if the borrower has a strong income or significant cash reserves. As you might suspect, credit scores influence almost every aspect of a boat loan including loan terms, interest rates, and loan amounts. 

Loan terms

Boat loan terms typically last 5 to 15 years, although some lenders provide loan terms of up to 20 years to borrowers with strong credit. The term length on a boat loan ultimately depends on the borrower’s credit, the size of the boat, and the type of boat being financed. 

Interest rates

The interest rate on a boat loan usually starts at 6% or 7% of the boat’s purchase price. However, if interest rates are high when you apply, the rate on your boat loan could be higher. Lenders consider your down payment, credit score, credit history, and their own lender policies when determining rates. 

Fees

Boat loans come with origination fees, processing fees, and closing costs. Lenders might also charge late fees if you’re late on your monthly payments or prepayment penalties if you decide to pay off your loan early. 

How do lenders determine boat loan terms?

Lenders determine boat loan terms by evaluating the boat’s age, design, and loan amount requested by the borrower. Take a closer look at what impacts loan terms, below:

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Boat age: Older boats usually have shorter terms and higher interest rates. Newer boats tend to receive better terms because they’re not as risky to finance. If the borrower were to default on their loan, the lender would be able to sell a new boat (1-10 years old) more easily than an old boat (20 years, or older). 

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Boat type: Boats that have a different design to modern powerboats are evaluated separately. Sailboats, race boats, houseboats, yachts, and boats with wooden hulls don’t always have the same loan terms as modern powerboats. 

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Boat loan amount: The amount of money you need to borrow also influences how long you have to pay off your boat loan. The more money you borrow, the longer you have to pay it back. Boat loans range from $5,000 to $5 million, with terms of 2-20 years. Most boat lenders won’t finance a boat loan beyond 20 years. 

How to apply for a boat loan

You can apply for a boat loan at a bank, credit union, online lender, boat dealer, or marine broker. Here’s what you should do before submitting a boat loan application.

Check your credit score

Applying for a boat loan with a very good or excellent credit score increases your chances of getting approved with better terms. Pull your credit report and check your credit score across the three major credit bureaus (Equifax, Experian, and Transunion). It’s important to check with all three to avoid any surprises at the time of application. 

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If you have fair or poor credit, try your best to bring it up by paying off large amounts of debt and making payments on time. If you don’t want to wait until your credit score goes up to buy a boat, focus on credit unions. They might be more willing to offer you boat loans for bad credit. 

Estimate how much you need to borrow

It’s also important to calculate how much you need to borrow. In addition to the price of the boat, you might need to borrow funds to pay for insurance, registration, taxes, and maintenance. Calculating these costs will help you justify the amount you’re asking for in a boat loan application.

Get pre-approved and compare offers from different lenders

Getting pre-approved with multiple lenders can help you secure the best rates and terms. Try to get pre-approved or at least prequalified with three different lenders so you can compare interest rates, loan amounts, and loan terms. Pre-approvals and prequalifications also give you an idea of what the monthly payment on your boat loan could be if you get approved. 

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Keep in mind, you’re still subject to credit approval in the final stage of the process when you submit a formal application. A pre-approval doesn’t guarantee approval, it just gives you an idea of your chances of getting approved. If you consistently get rejected, you may need to improve your credit score, increase your income, or look for another boat. 

Gather required documentation

Lastly, gather all the paperwork needed to complete a boat loan application. Each lender has their own list of required documents, but most will request:

• Recent pay stubs
• W-2s or tax returns
• Proof of residence
• Drivers license
• Social security number

Alternative ways to finance a boat

If you don’t think you’ll qualify for a boat loan or are having difficulty finding one, consider the following forms of boat financing. 

Personal loan

Borrowers who prefer shorter loan terms and have great credit might consider an unsecured personal loan. Personal loan terms range from 1-7 years, allowing you to pay off your boat fast. Interest rates on personal loans are often lower for borrowers with excellent and very good credit. Personal loans come with fixed rates and variable rates.

HELOC

A home equity line of credit (HELOC) is a revolving line of credit secured by the equity in your home. HELOC borrowers can withdraw funds up to a certain credit limit for a set term. The credit limit is determined by your lender, and the draw period typically lasts 10 years. 

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During the draw period, you only pay interest on the amount you borrow. After the draw period ends, you begin repaying the principal amount, plus any remaining interest. Interest rates on a HELOC are usually variable. Whether or not you qualify for a HELOC depends on your home equity stake, credit score, and other financial factors.

Home equity loan

A home equity loan is another way to pull equity out of your home. Home equity loans are a fixed-rate loan that provides borrowers with a lump sum of cash upfront. Borrowers need to start making monthly payments immediately after loan funds are disbursed over a loan term of 5-20 years. 

Home Equity Investment

Another way to leverage your home equity is to get a Home Equity Investment (HEI) from Point. An HEI provides homeowners with a lump sum of cash upfront in exchange for a portion of their home’s future equity. Instead of paying back the HEI through monthly installments, you settle the agreement when you sell or refinance your home in the next 30 years. 

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An HEI might make sense for borrowers with substantial equity in their homes, but less-than-ideal credit scores. Getting a conventional home equity product often requires borrowers to meet credit thresholds. Fortunately, the credit requirements on a HEI are much more lenient than on a HELOC or a home equity loan.

Frequently asked questions

What is the typical loan term for a boat?

Boat loan terms can be as short as 2 years and as long as 20. Most boat loan terms are between 5 and 15 years.

Are boat loans hard to get?

Getting a boat loan is similar to getting an auto loan. As long as you have a good credit score, a stable income, and a reasonable debt-to-income ratio, you shouldn’t have an issue getting approved. However, it might be difficult to find a lender that offers boat loans, especially if you don’t live in a region that has access to an open body of water. 

What credit score is needed for a boat loan?

Most boat loan lenders prefer a credit score of 680. However, some lenders will accept credit scores as low as 600 if they meet other financial criteria. To secure the most competitive rates, apply with a credit score of 700, or above. 

Final thoughts on boat loans 

Buying a boat is an exciting project that often requires financing. Borrowers can take out a secured or unsecured boat loan to pay for their boat. If you take out a secured boat loan, you’ll have to provide the lender with information about the boat you’re purchasing. If you take out an unsecured boat loan, you don’t need to provide any details about the boat. Keep in mind that unsecured loans of any kind usually come with higher interest rates, unless you have excellent credit.

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If you’re looking for an alternative way to finance your boat purchase, consider an HEI from Point. Unlike boat loans, an HEI doesn’t require monthly payments or strenuous credit checks. 

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Finance the boat of your dreams with a Home Equity Investment from Point. Borrowers can use the funds to purchase any type of boat, without having to report on the condition of the boat or their debt-to-income ratio. Explore Point’s HEIs here. 

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