Buying a boat entails a big financial responsibility. It’s not just too expensive in the first place. Maintaining a boat is also very costly. Despite that, more and more Americans are considering buying a boat. And there are plenty of reasons why. Also, there’s no denying how fun and rewarding it is to ride a boat with your family and explore lakes and seas.
But back to the problem – boats are expensive.
Yet, just because they come with a high price tag doesn’t mean you can’t own a boat anymore.
Thankfully, there’s this thing called “boat financing”.
But what is it and how does it work?
To understand it fully, here are some important facts that you should know about boat financing.
Boat Loans Are Much Like Car Loans.
They say if you can’t afford it, don’t buy it. Well, there’s a way to get your dream boat without having to shell out a big amount of money. Similar to car loans, boat financing comes with a fixed amount of loan that accumulates interest over time. The terms vary, depending on the loan offer. It can go as long as 20 years, with down payments ranging from 15 to 20% of the boat price.
Boat Loans Are Often Secured.
There are three major types of boat loans: secured, unsecured, and second mortgage. Secured loans are backed by collateral (which oftentimes the boat itself). This means if you are unable to make your monthly payments, your lender has the right to repossess your boat. Why do people opt for secured loans? Well, mainly because the approval rate for such type of loans is higher, even for those who have a seemingly poor credit history, aside from the fact that the interest rate is lower.
Sometimes, They Aren’t.
Unsecured loans, such as traditional online personal loans, means they are not backed by any collateral or guarantee. And because they aren’t backed up with a specific asset, lenders consider them riskier and typically charge higher interest rates to borrowers. The third type of boat loan is the so-called second mortgage which uses your home as the collateral. This is riskier than regular secured loans because, in case of default, the lender can come after your home.
Terms for Boat Loans Vary.
Generally, boat loans get up to a 20-year term especially if they are secured. Unsecured loans tend to come with shorter terms, ranging from 5 to 7 years.
Your Lender Needs a Down Payment from You, Too.
Just like a car loan, you will need to make a down payment, which is typically between 10 and 20% of boat cost, and then the rest will be covered by your lender. There’s also some depreciation, so you have to be prepared for that as well.
Interest Rates Can Be Fixed or Changing.
Both of these have their pros and cons. The type of interest rate for your boat loan depends on several factors, such as the lender, the loan term, interest rate, and your credit history.
Your Creditworthiness Matters… A Lot.
Yes, your credit score matters so much in getting your boat loan approved. Needless to say, a high credit score will result in an approved loan with a lower interest rate. Some lenders will approve loans for those with subprime credit rating, but typically, the interest rate is higher and there are some other requirements beforehand.
You Can Finance a Secondhand Boat Too.
But in this case, you will need to have a marine survey to determine the true price of the boat and how much you can borrow. During a marine survey, an inspector will check the condition of your boat and will take note of areas or parts that have to be repaired and whether it is safe to take it in the water.
Other Things Might Be Necessary Before a Boat Loan Gets Approved.
For financing boats for business purposes, such as a yacht, lenders might require some other things, such as security charges, assignments, and pledges. However, if the boat itself is the security, a corporate guarantee may be enough.
You Have To Choose Your Lender Carefully.
Many lending companies offer boat loans. If you’re considering one, take time choosing the best lender. Of course, you want to get an affordable deal, preferably a loan that has a lower interest rate and a term that should work with your financial status. Once you’ve selected the right company, gather all the documents needed to process your loan request. In addition to your personal financial statement, you will need to submit copies of your credit report and tax returns too. It is always helpful to familiarize yourself with the federal and state laws on lending.
Boats are classified as luxury items. Thankfully, with the help of boat financing, you can afford to buy one.