How to Finance a Boat

The text describes a four-step process for easing into open waters.

You can still set sail if you want to buy a boat. The first step is to decide what type of boat you'd like. Finding out how you will pay for your dream vessel is a different decision.

You can secure a boat with a personal loan, which you can use for almost anything. Other options include marine loans, which use the boat as collateral. Whatever you decide, choose a financing option that will allow your finances to sail smoothly.

How to finance a boat: Three loan options

The process of buying a boat can be compared to that of purchasing a vehicle. You can walk into a boat showroom, choose what you want, get a loan, and then leave with your boat.

John Haymond of the National Marine Lenders Association says that a buyer who has excellent credit could get approved on the spot, and take the boat home the same day, depending on factors such as the size of the loan and the other factors.

Before you buy a boat, it's important to understand the three main options available for financing.

Secured Loan through a Dealer

According to the NMLA, boat dealers have relationships with marine lenders and boat manufacturers. You'll get a secured loan from a dealer that uses your boat as collateral.

Todd Nelson, senior VP of strategic partnerships for online lender LightStream, says that historically, lenders almost always required collateral to make large-dollar loan. If a borrower is unable to pay, the lender can sell the asset in order to recover their loan losses.

A secured boat loan may have lower interest rates than an unsecured boat loan, since lenders can repossess the boat in case you default.

A secured boat loan from a dealer can offer benefits beyond lower rates of interest. You could, for example, access special financing offers through the boat manufacturer. These deals may include promotional interest rates and delayed first payment. Your loan could also include an extended warranty.

Secured Loans Directly with a Lender

You can bring your own lender to the table instead of using the financing resources offered by a boat dealer. You can choose your own lender and be preapproved for a loan based upon the price of the vessel you wish to purchase.

Secured boat loans are available through online lenders, brokers, and credit unions. With a secured personal loan, secured home equity loan or home equity line of credits you may be able get secured financing even without your boat.

Unsecured Financing

A personal loan with no collateral is a great option for those who have good credit and income.

Nelson says that unsecured lenders underwrite the borrower and not the collateral. This makes the funding and application process much easier. An unsecured loan is available to buy any boat, from any seller.

A personal loan can be used for almost any purpose. Secured boat loans, however, may restrict the type of boat and its age. A personal loan may give you greater flexibility when it comes to the model and year of the boat that you purchase. Some personal loan lenders will offer up to $100,000.

Nelson says that if you plan to spend less then $100,000 on a vessel, an unsecured boat loan is easier and offers more flexibility because the borrower can purchase any boat anywhere. A secured loan is the only option for larger boats. Larger loan amounts might require collateral.

How to finance a boat in 4 steps

Make sure your credit and finances are strong

You can get a lower rate of interest on a boat loan if you have a higher credit score. Your lender will consider other factors, such as your income or debt-to-income proportion.

If you are getting a secured credit, a deposit may be required. Your lender will ensure that your boat's price matches its market value if you use a secured loan. The lender can use this information to calculate the loan-to value ratio, which is the amount of money you're borrowing in relation to the fair market value of the boat. A down payment may help to reduce the LTV, and speed up the approval process.

Be sure that you can afford all the additional costs associated with owning a vessel, including insurance, travel trailers, fuel, and maintenance such as winterizing.

Choose the type of boat you want

There are many different types of boats, from small fishing boats to yachts worth millions. Haymond advises, "Know how you plan to use it." Are you planning to use it for fishing, water skiing, or cruising on the lake? Your preferences will help you narrow down your search, and set a realistic budget.

Compare Loan Offers

Compare offers from different lenders to get the best deal.

When you buy a boat from a dealer's financing team, they can help you compare the offers of partner lenders and manufacturers. If you are using a personal loan that is unsecured, you can check the terms with many lenders without affecting your credit score. Soft credit pulls are used by lenders to determine what terms you might qualify for, based on basic credit information.

You can compare loan options to see which one is best for you. Lenders may have different terms, such as fixed or variable rates, payment balloon options, repayment terms, and monthly payments.

Finalize your loan

After you have chosen and been approved for your loan, it is time to close the deal. You can close your boat loan online or in a more formal way by signing documents at the dealer.

It is essential to review all documents before signing any loan agreement. This will ensure that you are getting the annual percentage rate (APR), term length, monthly payments, and other features you expect. It's also important to ensure that all the accessories, warranties and add-ons that you requested were included in the loan. You should also make sure you have met the insurance requirements of the lender for your new boat.

Once all the details have been sorted out, it's finally time to get on the water. Before you launch or pull away from your dock, set your monthly boat loan payment on autopilot. Autopay is the easiest way to ensure that you pay on time every month.