Boat Loans

Boat Loan Terms: How Long Can You Finance a Boat?

Buying a boat? Before you gather your gear and take to the high seas, you’ll likely need to figure out how to afford your purchase. One of your key questions may be: How long can you finance a boat? Boat loans, unlike car loans, can stretch up to 20 years, nearly as long as a home mortgage. Whether you should borrow for that amount of time depends on several factors, including the cost of the boat, which can range from a new johnboat under $5,000 to million-dollar yachts. In general, the lowest interest rates are for the shortest loans, but your monthly payments would be higher. Read on to learn more about boat loan terms.

Where can you find a boat loan?

How long you can finance a boat may also depend on where you find financing. Here are some of the main venues where you’ll be able to find boat loans:

Dealer financing. About 80% of new boat financing deals take place through dealerships, according to Jim Coburn, a principal at Coburn and Associates LLC and member of the Michigan Boating Industries Association. “Banks have relationships with dealerships and dealerships have the customers,” he said. “They refer the boat loan customers to the banks.”

Banks, credit unions and online lenders. Much of the remaining 20% of U.S. boat loans takes place directly through the lenders themselves. In researching rates from top boat lenders, we found APRs as low as 4.29% at online lender LightStream, a division of SunTrust Bank, and 4.59% at Essex Credit, a division of Bank of the West, as of publication. You also may be able to find competitive rates at credit unions or your own bank that may offer discounts to existing customers.

Marine brokers. These sources usually are involved when you are purchasing a pre-owned boat, according to the National Marine Lenders Association. Brokers connect you with the seller, help you find the right boat for your needs, negotiate the sale and work through the purchase. While many brokers work for sellers, they also offer buyer services, such as connecting you with finance programs and holding deposits in separate bank accounts in escrow. Should you decide to work with a buyer’s broker, they will represent you — not the seller — and help you find the right boat for your budget and needs.

Shop around. If you do decide to buy a used boat, it’s important to make sure you’re paying what the boat is worth. Consult an industry resource, such as NADAGuides to research values and prices in your area. Used or new, as you’re determining which financing path works best for you, it’s crucial that you comparison-shop to compare rates and boat loan terms from a variety of lenders. The LendingTree boat loan calculator helps you determine your monthly payment using the loan amount, interest rate and loan term. Additionally, the calculator breaks down monthly payments by year, helping you plan ahead. Should you find that your estimated payment is a bit tight for your budget, the tool allows you to adjust the loan amount and/or boat loan term to find what best fits your needs. When it’s time to buy, you may fill out a single LendingTree form and receive up to five possible loan offers from lenders based on your creditworthiness.

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Types of boat loans

Rates depend on elements like loan size, consumer credit score and whether the vessel is new or used. Prime-loan rates for those with the best credit range from about 5-7%, according to Coburn. Term length is usually 15 to 20 years; for example, if you have a loan in the $25,000 range, you may be able to finance it for 15 years. Higher loan amounts often equate to longer boat loan terms. Keep in mind that a down payment is typically 15-20% and is required by many lenders.

These are some of the more widely used types of boat loans:

Fixed rate. Many boat buyers choose to lock in a rate and add predictability to their budget. “Fixed is by far the most popular and most widely used type of loan out there today,” Coburn said.

Adjustable rate. If you feel confident that you can weather the fluctuations of interest rates over time, you may be able to nail down a competitive loan that offers a low introductory rate followed by one that adjusts according to interest rate indexes. There are also boat loans that include a lump sum “balloon” payment at the end. Just make sure you check the number of years your rate stays fixed before shifting to adjustable or, in the case of a balloon loan, that you can afford the payoff amount at the end of your term.

Alternatives for financing a boat

If you would rather not go the traditional route or your credit is challenged, there are other methods of financing your boat purchase. These include:

Home equity loans or lines of credit. Since these loans are secured by an asset – your home – you may be able to find competitive rates. At the time of publication, APRs for home equity loans and HELOCs of $25,000 could be found for 6%, slightly higher than the 5.59% APR for the same amount from Essex Credit. However, an advantage of a home equity loan is that rates are typically fixed. Be aware that if you’re tapping the equity in your home for a pleasure purchase, be certain that you’ll be able to repay the debt, or you risk losing your house. Furthermore, you may find yourself paying pricey closing costs and other fees, though some lenders will waive these fees.

A typical home equity loan has terms from five to 15 years, which may be longer than you need for a relatively inexpensive boat. HELOC terms vary but may last up to 20 years. An advantage of a HELOC is that you only pay interest on what you borrow but interest rates may be variable. You can read more about home equity loans versus HELOCs here. Remember that good credit is vital here — you typically need a FICO score of at least 680 to qualify for either a home equity loan or a HELOC.

Personal loans. Many lenders offer unsecured personal loans, so it’s easy to shop around to find the right one for you. If your credit is positive, you might be able to get a low interest rate, and since the boat isn’t anchoring the loan, the lender can’t repossess it if you default. Keep in mind, though, that your credit will still take a hit should you default. Moreover, you might be hit with high interest rates if you have less-than-perfect credit, plus the steep origination fees charged by some lenders. Most personal loan terms run from two to five years, so if you’re taking out a large amount, you might find it challenging to pay it off in a relatively short amount of time.

Secured personal loans may be better suited to those with challenged credit. Unlike unsecured loans, these loans are anchored by collateral that can be seized should you fail to repay the debt.

Subprime loans. A select handful of lenders offer personal subprime loans to those who are challenged in getting financing through other methods. “Those are (for) people with bad credit, scarred credit, if you will,” Coburn said. “This gives them a chance to get a loan, usually with tighter terms.”

Cash payment. If you have the means, cash is accepted just about anywhere – and that includes boat sellers. The best part is, cash doesn’t require a credit check, but it may mean putting yacht dreams on hold in favor of a lower-priced boat. Purchasing the right type of boat for your needs — a boat for a crowd or a boat for two, freshwater or saltwater? — will help you determine a budget.

The bottom line on boat loan terms

If you’re financing the purchase of a boat, keep in mind that your options vary along with your financial picture. As with any other loan, those who come bearing good credit and a decent chunk of disposable income will find more favorable boat loan terms than those with less-than-perfect credit and a tighter budget. In general, financing a luxury item like a boat may be subject to higher underwriting standards than a car or home.

A few things to be aware of:

  • Simply getting approved for a loan and being able to make a down payment does not necessarily mean that you will be able to keep up with the obligation long term. Make sure you consult your budget and be realistic.
  • When shopping for a loan, be sure to check your credit, pay down other debt and get prequalified so that you know the exact amount for which you’ll get approved.
  • Don’t get in over your head. It’s tempting to buy a boat, but the better option is to make sure that you can afford the payments before giving into that temptation.

The fees mentioned in this article are accurate as of the date of publishing.