The propsail guide

Boat Loan Basics

More people than ever are buying boats and the purchase typically comes with a significant price tag. Whether you are an experienced owner or just getting your feet wet with your first boat, know that a boat purchase can be more accessible than you might think. 

Before you find your dream boat, consider what payment option works best to meet your financial goals. With many funding options available to boat buyers, exploring these options in advance allows you to have a better understanding of the loan process and the associated costs of financing. Cash payments are always a great option, but also a luxury, and many times do not meet the needs for today’s buyers. Because of this, many watercraft purchases are financed. The most obvious and seamless option to finance your boat is with a boat loan. Specialized lenders allow borrowers fund their purchase, using the purchased boat as the collateral. So while it’s not entirely unsecured, you’re not having to put up any existing assets as the collateral. It’s very similar to the way a car loan works. If you default on the loan, the lender would repossess the boat in order to take care of the balance owed on the loan.

One major difference between boat and auto loans, is the term lengths available for boat loans. Spreading out this major purchase over a longer period will bring down your monthly payment significantly, but will add to your finance costs; a buyer can decide where that happy balance between the two fits with their needs and wants. There are many different loans and lenders to choose from, depending on whether you plan to buy a new, used boat or refinance an existing loan, how much your boat costs, and how you plan to use it. As with all loan products, you can also expect boat loan terms to vary based on personal factors like your credit score.

The three most common lending routes

The process has been streamlined over the years and finding a lender is now easier than ever. We will highlight the three most common boat loan options with you, so that you will have the knowledge, confidence and direction required to find the solution that works best to meet your financial goals. It’s time to get off the dock. 

Financing through your boat dealer Boat dealers set up boat loans every day. Working with your dealer you’ll be working with a specialist who is well versed, has established relationships with lenders and has a mutual goal of getting the transaction finalized as quickly and efficiently as possible. In house options are equally competitive on rates and generally provide the best buying experience.	Specialized Marine Lenders Many lenders specialize in marine lending and are familiar with all the Ins and outs of issuing boat loans which can be crucial in the buying process. This is a great option to explore when buying a boat from a dealer that might not have many lending options available to them or when buying from an individual. Additionally your local bank might very well be a member of the NMLA.	Local Credit Union Boat buyers who have an established relationship with a credit union might choose this option for a number of reasons such as familiarity with the institution or potential for rate discounts. Credit unions generally provide competitive rates. One disadvantage is limitations concerning the class of boat being purchased or in the financing terms. However, this lending option is one buyers should inquire about.

Qualifying for a Boat Loan

When making a big purchase you should shop around for financing offers first. To be as prepared as possible, make sure you understand your current credit score. This has a huge impact on your interest rate, which affects your monthly payments and ultimately your affordability. Credit score is influenced by the following factors:
• Payment history
• Amounts owed
• Cedit Age
• Credit Usage
• Hard inquiries
• Negative information

Check to make sure everything on your credit score is accurate so you don’t end up paying more than you need to. If you find inaccurate information, take steps to correct any discrepancies prior to applying for a boat loan.

How much you can spend each month. Lenders will look at your debt-to-income ratio to determine how much of a loan payment you’ll be approved for. You’re the one paying your bills each month, so it’s important to make sure you have the ability to meet all of your current financial obligations, as well as any emergencies that may arise in addition to a new loan obligation.

Final Thoughts

We always advise you to research, ask questions and find the solution that fits your personal financial goals. With many options available to boat buyers, exploring these options in advance allows you to have a better understanding of the loan process and the associated costs of financing your new or used boat. 

Lastly, you will surely come across the “if you don’t have the cash, don’t buy” crowd. Cash payments are always a great option, but also a luxury, and many times do not meet the needs for today’s buyers, especially with the current low interest rates. Many watercraft purchases are financed. There is no right or wrong way when it comes to funding your boat purchase. We look forward to seeing you out on the water!