Don’t sink your finances — consider these factors before getting a boat loan

Americans spend over $49 billion annually on boats, marine products and services. It’s safe to say we love boating. However, owning a boat is an expensive endeavor. Beyond the sticker price, there are maintenance costs, insurance and other extras that can set you back by several thousand more a year. Buying a boat can be a fun investment, but consider these factors before applying for a loan.

5 factors to consider before applying for a boat loan

When it comes to purchasing a boat, financing is usually the way to go, but there are a few considerations to weigh before applying for a boat loan.

1. Your credit

Most boat loans are issued based on credit. The higher your credit score, the better your chances of getting approved for the loan.

Your credit score also plays a key role in determining how much interest you’ll pay. Although some lenders may approve you for a loan with bad credit, you’ll have a higher interest rate.

Be sure to check your credit score and credit report to see where you stand. You can request a free copy of your credit report from all three major bureaus by visiting AnnualCreditReport.com. These reports show you where you stand with creditors and if you need to build your credit before applying for a loan.

2. Your budget

As with any big purchase, ensuring that your future boat loan payment fits your monthly budget is important. Take the time to inventory your debts, minimum payment dues and other financial obligations to understand how much boat you can afford.

Depending on the lender, you may be asked to make a down payment between 10 to 30 percent of the total loan amount. This is more common with secured loans. If you need help crunching the numbers, use Bankrate’s boat loan calculator. This will give you an idea of your price range and the repayment term length.

Average costs of different types of boats

The average cost of a boat in 2024 is $203,000, according to a report from the Boats Group. Basic models are available for less, but luxury models like yachts can cost millions of dollars.

3. The type of loan you’ll need

Boat loans can be secured or unsecured. With a secured loan, an asset is required to serve as collateral if you default on the loan. Unsecured loans, on the other hand, don’t require any collateral and are issued based almost entirely on credit.

If your credit needs work, a secured loan may be the better option. Secured loans tend to be easier to qualify for and offer lower interest rates than unsecured loans. However, if you default on the loan, you could lose the boat or any other asset that was used as collateral.

Unsecured boat loans are personal loans used to buy a boat. They suit those with good-to-excellent credit and strong finances — or those who have a cosigner that meets these criteria. If you fall behind on payments with an unsecured loan, the lender can’t seize any assets from you unless they take you to court. However, your credit will still be affected by the default.

4. The total cost of owning a boat

This shouldn’t come as a surprise, but the cost of the boat itself is just part of the equation. Yearly boat maintenance costs are equal to 10 percent of the total cost of the boat. So, if you have a $40,000 boat, that’s about $4,000 a year. On average, expect to pay anywhere from $5,000 to $8,000 a year in addition to the monthly payment.

You’ll also have to pay for insurance. Boat insurance rates are about 1 percent to 5 percent of the boat’s insured value.

Other costs to factor in include:

• Fuel.
• Dock fees.
• Storage fees.
• Taxes.
• Registration.

5. How often you’ll use the boat

According to the U.S. Coast Guard, the average boat in the U.S. is only operated for 54 days a year. If you’re thinking about using your boat occasionally during Spring Break or summertime, taking on thousands of dollars worth of debt and other expenses may not be worth it.

You may be better off renting a boat for specific occasions. Although renting isn’t cheap, it will save you money on insurance costs, maintenance and other fees.

How to qualify for a boat loan

Just like any other loan, you’ll need to meet the lender’s eligibility criteria. However, boat loans may be harder to finance than other types of loans. These are luxury and often high-cost purchases, so boat loans pose a higher risk to lenders.

To qualify, you will have to meet the financial requirements. Your boat may need to meet age and condition requirements, too.

To get approved for most boat loans, you’ll likely need:

• Good-to-excellent credit.
• Reliable income
• A low debt-to-income (DTI) ratio.

These factors determine your creditworthiness, so pay attention to the lender’s requirements and your financial health before applying. You may have difficulty financing older boats, especially if you’re looking into secured options. If you struggle, you may need to look into getting an unsecured personal loan with a co-signer.

Shop around for lenders before applying for a loan. Some lenders even allow you to prequalify so you can check your rates without impacting your credit. Take the time to compare quotes from multiple lenders to get the most favorable terms available for your situation.

Bottom line

When deciding to buy a boat, weigh your finances and budget against the total cost of owning a boat. Once you know how much you can afford, find loan options that suit your budget. Boats can be an expensive investment but also a great way to spend warm days. Doing your research can be well worth it before getting out on the water.