How to finance a boat

If your sights are set on buying a boat so you can set sail whenever you want, you may need to get a boat loan to make that dream a reality. Boat loans are a type of installment loan that is used specifically for the purchase of a vessel. These loans can be secured or unsecured and typically have repayment terms of two to 15 years.

Boat financing is available from different types of lenders. But the best boat loan for you will depend on a number of factors, including your credit score and the type and size of the boat you’re considering.

How to finance a boat in 5 steps

Applying for a boat loan can be similar to applying for an auto loan. If you take out a secured loan, the lender will need information about both you and the boat you’re considering purchasing. An unsecured loan, however, doesn’t require you to provide any details about the boat. Regardless of your loan type, follow these steps for a smooth application process.

1. Check your credit score

You’ll have to consider many factors before getting a boat, and your credit score is the main one. Lenders check your credit score to determine your creditworthiness. Secured boat loans may require higher credit scores than auto loans.

The higher your score, the more you can borrow at lower rates and longer terms. You may also have a lower down payment requirement than if you have a lower credit score. If your score isn’t in the good-to-excellent range, you may want to focus on unsecured personal loans to finance your boat.

2. Calculate how much you need to borrow

If you’re looking at a boat in a particular price range, use a boat loan calculator to get an idea of how much your payment will be. Compare the payment for a short term versus a longer-term loan.

A short term will pay your boat off faster with less total interest, while a longer term will save you money monthly, but cost you more over time. Include costs such as taxes, registration, insurance and ongoing maintenance in the total loan amount unless you plan to pay those costs in cash.

3. Gather the required documentation

To keep the loan process moving smoothly, you should have a recent pay stub, W-2, tax return, brokerage account statements, proof of residence and driver’s license ready. If you’re taking out a secured loan, you may also need information about your boat.

Online lenders usually allow you to upload your documents, and certain banks and credit unions may also allow digital copies. To prevent delays, make sure you take legible pictures or scans of them.

4. Prequalify and compare lenders

Try to work with lenders that offer the option to prequalify for a boat loan. You’ll get a good idea of what they can offer without dinging your credit score with a hard inquiry. Compare the rate quotes from at least three lenders before you commit to one.

5. Submit a full application

After choosing the lender you want to do business with, you’ll generally finish the application process online. You should get a final answer within a few hours or a few days, depending on the type of lender you’re working with and whether you prequalify.

If you’re taking out a secured loan, you may have to wait for a marine survey report. This report assesses the boat’s value, similar to how a home appraisal estimates the value of a home.

The lender will run a hard credit check and may ask you for additional documentation before finalizing your loan paperwork. Funds are usually directly deposited into your bank account.

Where to get a boat loan

The best boat loan for you may be available at your local bank, credit union or with an online lender. Regardless of where you get your boat loan, compare at least three lenders to see which rates and terms work the best for your boat purchase. Ask about secured and unsecured options — the rates and terms may differ significantly depending on your choice.

Traditional banks

If you prefer in-person service and want to have all your accounts in one place, check on boat loan options with your local bank. Traditional banks may offer loyalty discounts on interest rates and fees related to boat financing if you’ve banked with them for several years.

However, you’ll typically need to meet higher credit standards and the loan process may take longer than other types of lenders. If you’re in a hurry to set sail or want to move quickly on a purchase, a bank may not be the right choice for you — especially given some banks may not even offer boat loans.

Credit unions

Credit unions can be a good source for boat loans — if you’re a member. You may be eligible for membership perks that are similar to those offered by banks, like lower interest rates and fees. Credit union loan approval requirements may be more relaxed than traditional banks, although you’ll generally need a fair or good credit score to qualify.

Online lenders

Online lenders primarily specialize in unsecured personal loans that can be funded quickly. They often have quick approval processes that require little documentation compared to other options.

You may also find more options for bad credit, although you’ll pay much higher rates than other boat loan types. That said, if you have excellent credit you may find some of the best personal loan rates. They are a good option if you are confident you can afford the payments and you’re buying a used boat or can’t qualify for traditional or credit union boat loans.

Alternatives to taking out a boat loan

Boat loans can help spread out the costs of purchasing a vessel, making the initial investment more affordable, but there are also some cons. For instance, many lenders charge origination fees on top of interest rate, resulting in a higher overall cost.

If you have less-than-stellar credit, you may also end up with a high interest rate and monthly payment, which could increase your chances of defaulting on the loan. That said, there are other ways to purchase or use a boat if you don’t want to take out a boat loan.

Pay in cash

Paying cash for a boat is the cheapest purchase option because you don’t pay interest charges or loan fees. However, ensure you have enough remaining cash to maintain an emergency fund and accomplish other financial goals before considering this option.

Rent a boat

If you’re only occasionally on the water, renting a boat may be more cost effective. Aside from savings on loan costs, you won’t need to pay to store, maintain or insure it.

Marine financing

Boat dealers may offer financing options from a preferred lender onsite. This may be a convenient way to buy and finance your boat in one place, but you should still compare the financing terms with other lenders to ensure you’re getting the best deal.

The bottom line

A boat loan can be a great way to afford boat ownership, as long as the financing terms make sense for your budget. Decide how much you want to commit to while financing a boat and stick with a boat price that keeps your monthly payment affordable. Don’t forget to budget for the ongoing costs of owning a boat like fuel, maintenance, docking, storage and insurance.