Breaching the Waters: Understanding Boat Financing

How Long Can You Finance A Boat

The time has finally come: You've done all the work of researching boats, picking out the model you want, planning your negotiating strategy, and getting ready for the trips you can take. What comes next is the actual purchasing phase, right? In reality, not quite yet.

One of the essential phases of preparing to buy a boat is understanding the financing options available to you. Unless you have a high disposable income or you've been saving for a while, you likely won't have the cash to pay for the boat in full—especially with new boat prices increasing over the past few years.

If you've never financed a boat before, then the process may seem intimidating. Thankfully, many aspects of getting a boat loan are similar to the lending options available for buying cars or homes. So what do you need to know about the financing process to get the best deal on your boat?

Loan Options

When it comes to financing your boat of choice, you have different options available to you. While the exact terms will depend on the lender, the price of your boat, and what you provide as a down payment, you will still likely find one of these standard loan options available:

Fixed Rate

A fixed rate loan is the most common type of boat financing and with good reason. As the name suggests, the price is "fixed," meaning that stays the same throughout the entire lifetime of your loan, which means you'll have a predictable monthly bill to add to your budget.

Adjustable Rate

This type of financing means that your interest rate will change depending on the market, usually after a period with low introductory interest. While this can lead to good deals, it also means your payments may change over time.

Many buyers prefer to take a fixed rate loan so that there are no surprises later in their payoff term. However, other buyers may not be able to get a reasonable rate through these loan types due to credit complications. If you feel that may be a challenge for you or you want to know your other options, there are alternative ways to finance your boat.

Subprime loans can be an option for those with poor credit, while home equity loans can provide fixed rates for competitive rates while using your home as collateral. Personal loans also offer an option that won't hold the boat as collateral (meaning the lender can't repossess your boat if you default), but it will instead have the potential to impact your credit negatively.

Overall, the better your credit and your finances, the better chances of you'll have of getting more flexible loan terms that will make it easier to keep up with monthly bills until you've paid off the entire amount.

Loan Term Lengths

While you can afford a down payment and receive approval for a loan, it's critical to remember that you'll be responsible for paying your bills on time. Because of this and other financial costs of owning a boat, which includes insurance, maintenance costs, renting storage space, it's essential to plan for the long term and ensure your boat payments fit into your budget. So how long can you finance a boat?

For the most part, lenders will have repayment terms available between fifteen to twenty years. What a lender will grant you will depend on other aspects of your loan, such as your credit and disposable income. Even so, these longer loan lengths can help you afford a more expensive boat over time, but you need to stay aware of the interest rate to ensure you can meet the terms.

For the most part, the nontraditional loan options we discussed will have similar financing lengths. However, personal loans can potentially have shorter terms—sometimes as long as five to seven years. This length can be helpful when financing a less expensive boat, but it can cause higher monthly payments depending on your total loan amount.

Things to Know Before Financing a Boat

Understanding the types of loans available and how long they'll last is only some of the pieces of the larger financing picture. The more information you have on your side, the better you can prepare to get the best possible deal on your boat.

Down Payments

Making a down payment on your boat is usually a smart move, as it will reduce the total amount of money that you'll need to borrow—and in turn, reduce how much you'll pay back in loans when you've calculated in interest. Aside from being a sound financial decision, though, many lenders will require you to make a down payment before they approve your loan.

On average, you'll find that most lenders require anywhere between fifteen and twenty percent of the total boat cost in down payments. You should aim to save up at least this amount before going to purchase your boat; if you can afford to do so, having more money for a down payment is the best option to help you borrow as little as possible.

Researching Loans

Since buying a boat is an exciting event, it can be easy to take the first loan you receive approval for and go with it. However, rushing into financing can mean you'll miss out on a good deal. You should always compare various lenders and what they offer in terms of interest rates, repayment terms, and monthly costs.

Thoroughly comparing different lenders will make sure you get the best offer. You should also confirm any details of the loan that may be in the fine print during this process. By taking the time to look into loans in advance, you can even receive pre-approval on your financing, which can help with finalizing your purchase when it's time to buy.

Financing Older Boats

If you're planning on purchasing an older boat to save some money, be aware that this can impact your financing options. While lenders will finance used models, their policies may differ depending on the value of the boat and its age. In some cases, you may not be able to receive approval on a loan if the ship you're considering is over fifteen years old.

Thankfully, boats in this age range tend to be less expensive, which makes them much easier to buy with cash than a new model. However, if you still need financing, you may need to use nontraditional methods, like a personal loan. If you're working with a sailboat trader or other boat broker, they may be able to help you find financing options.

Application Essentials

When you decide on your financing option, you'll need to fill out the lender's application. While the specific information you'll need to fill out will depend on where you're receiving your loan, you can expect to provide:

●       Your employment information

●       Personal finance statement (including all assets and liabilities)

●       Core information on the boat you plan to purchase

The more of this information you have available in advance, the smoother time you'll have with completing the application process. Generally, the quicker you can make it through this stage, the faster you'll know the lender's decision. On average, you can expect a response within a week, though things can vary depending on the financial institution.

Purchasing a boat is an exciting event, but it does usually require financing to complete. Knowing what to expect will help you make smart financial decisions for your budget and find the best deals in the long run.