Unless you're fortunate enough to pay up front, you'll most likely be financing your new boat. When you sign the dotted line, you need to be 100% sure about your financial decision. Any options left unexplored may mean savings left on the table, and you simply can't afford not to do your homework.
We've gathered all you need to know about the sources of marine boat financing, and the different boat financing options at your disposal.
Types of Lenders
Banks: Many local, regional, and national banks offer boat loans to their customers, but may not specialize in boat loans.
Credit Unions: Credit unions offer competitive rates for their members. They also have more flexibility for borrowers with less-than-perfect credit.
Dealers: Dealer financing is quick and convenient, but may be more costly because dealers work with other financial institutions and receive a cut of the earnings.
Marine-Specific Lenders: Some lenders specialize in marine finance. For example, the National Marine Lenders Association has 100 members throughout the country. One of those members – Intercoastal Financial Group – operates boatloan.com, which works with financial institutions in 48 states.
Types of Financing
Financing Options Secured Loans: Secured loans require collateral, typically the boat itself. Benefits include being able to borrow larger amounts and typically paying less interest. The obvious disadvantage is that you could lose the boat altogether if you default.
Unsecured Loans: Unsecured loans do not require collateral, which often makes the process quicker. That convenience comes with a cost, though, as rates are higher. They are also difficult to obtain without regular income, or with limited credit history or poor credit. In that case, a cosigner with good credit history and stable income may be required.
Home Equity Loans: Did you know you can use the equity in your home to purchase a boat? Because such loans are secured against the value of your home equity, you may qualify for a lower interest rate than for a typical boat loan. One advantage is that an individual may deduct the interest paid on up to $50,000 in home equity debt, with that number increasing to $100,000 for a couple. However, if you default on your boat, you could put your home in jeopardy, as well.
Home Equity Line of Credit (HELOC): HELOCs allow individuals to borrow against the value of their home on an as-needed basis. Requirements include a debt-to-income ratio of 40% or less, a credit score of 620 or higher, and a home value at least 15% more than what is owed. During the “draw” phase of typically five to 10 years, you pay only interest. However, interest rates can rise significantly in that amount of time. Note that some banks are not currently offering HELOCs due to uncertainty caused by the COVID-19 pandemic.
Cash-Out Refinance: It may be possible to refinance your home for more than you owe, and use the proceeds for a purchase such as a boat. While this option typically results in a lower interest rate than a home equity loan or HELOC, closing costs will be required, and private mortgage insurance is required when borrowing more than 80 percent of your home’s value.