Shopping for the boat you want is exciting, but if you choose to finance the boat, then you’ll also need to shop for a lender to get the proper boat loan. Granted, shopping for boat financing options and interest rates isn’t nearly as much fun as shopping for a boat, but it’s still an important part of the process. If you’d like to get pre-approval and take a big step towards buying your new boat, visit our partners at Trident Funding for boat loans and to help you find participating lenders in every state.
You should have a good understanding of how boat financing works and what your options are before you start combing through boats for sale on Boat Trader’s search pages for that perfect boat! While you don’t need to master the art and science of boat finance, you will need to know what to expect as you begin the process.
What Do You Need To Qualify For A Boat Loan?
To get a boat loan, you must demonstrate to the lender that you have the financial capability to repay it. Banks primarily consider your credit score, so it’s crucial to check your credit rating from the major bureaus such as Experian, Equifax and Trans Union. A credit score below 700 may hinder your chances of obtaining a loan, while a score above 750 may result in more favorable interest rates and loan limits.
First: Get Your Credit Score In Shape
Above: Your credit score is an important factor in getting approval for a boat loan. Photo via Pond5.
Remember, it’s important for you to check your credit rating before the bank looks into it. Here’s why: If you find a problem or some inaccuracies, it’s much easier for you to get those straightened out before you apply for a loan.
Be sure there are no closed accounts that are being reported as open, and close any open accounts you don’t use anymore. By accessing your credit report first, you can stop problems before they start. There are lenders out there who will do subprime financing, which provides options for people with lower credit scores, but the national lenders will likely require credit scores to be 680 or higher. So, tidy things up before you begin. If you need to you can hire a third party to help you repair your credit and challenge or remove items from your history.
Second: Understand Your Debt-To-Income Ratio
Above: Your debt-to-income ratio is another important factor in getting a boat loan approval. Image: Pond5.
Banks also look at your debt-to-income ratio, which is determined by dividing your monthly debt payments by your monthly income. Many lenders prefer a debt-to-income ratio of around 40 or 45 percent, including payment on the boat loan for which you are applying.
Lenders also will look at your net worth and liquidity. Your net worth is defined as assets minus liabilities – usually properties owned less any debt you have. A liquid asset is anything that can be turned into cash within 30 days or less.
Third: Payment History
Above: Your payment history will play a significant role when you go to apply for a boat loan with any lender. Photo: Pond5.
Your payment history also plays a crucial role in determining your eligibility for a boat loan. Even if your credit score is satisfactory, if there are records of late payments on your credit report, lenders may be hesitant to approve your loan application. Payment history reflects how you’ve managed your credit accounts over time. This information is crucial as it can make up 35% of your overall credit score and is considered a key factor in its calculation. Studies have shown that your track record of payment is a strong indicator of your likelihood to repay future debts. Lenders are mainly interested in your past record of repaying or defaulting on loans. Although one or two late payments may not significantly impact your score, as long as you have overall good credit history. However, having no late payments on your credit report does not guarantee a perfect score as it is only one aspect considered in calculating your FICO Scores.
Fourth: Home Mortgages Help Significantly
Above: Lenders prefer to see borrowers who have proven they can make consistent payments on large sum loans like home mortgages. Image: Pond5.
Another thing many boat financing lenders will look at is whether or not you currently own a home, and if you are current and up-to-date on your mortgage payments. Lenders tend to prefer those who have owned homes in the past and proven that they can make consistent payments on large sum loans. Ideally, the home mortgage should be substantially more than the value of the boat you are trying to finance. Most lenders will shy away from big sum loans to those who have never owned homes and/or proved they can pay off substantial amounts of money.
Boat Down Payments And Ownership Costs
“Obviously, if you’re applying for a boat loan, you have to be able to show that you have the money to make the down payment, but also be able to pay for the expenses of owning a boat – whether that’s insurance, slip fees, fuel, all those things that go into boat ownership,” said David Mann, membership program manager for Boat U.S., a boat owners association that connects lenders with buyers, among other services.
Boat down payments are usually between 10-20 percent, but can depend on the cost and value of the boat as well as your location and finances.
Boat Loan Interest Rates
Above: Boat loan interest rates can vary significantly based on a number of important factors. Image: Pond5.
The boat loan rate that you qualify for will depend on factors such as credit score and payment history, as well as the term of the loan, and the age of the boat you’re buying. For instance, you may be able to get a lower interest rate on a boat that is slightly newer. Typically, loans with shorter terms have higher interest rates than loans with longer terms. Keep in mind that interest rates can also vary based on your credit history.
“First, we always say do your research. In marine lending, there’s a lot of disparity between lenders,” Mann said. “An individual might have a relationship with a local bank or credit union that might not necessarily know boats, but they do boat financing because they do car and RV and motorcycle loans. Sometimes it’s easier and faster to work with these local banks or credit unions, but it could also mean that your loan terms will be shorter. The national lenders, on the other hand, will finance boats in all 50 states and they often have a good understanding of boats. Be aware that their underwriting process can be a little bit more rigorous.”
Boat loan interest rates can vary significantly based on the purchase amount, how much your financing and your application details including credit score, payment history and other factors mentioned above. Typically they range from 5% on the low end to up to 18-20% on the higher end, with the average current boat loan interest rate in 2023 being somewhere between 7%-10%.
Steps In The Boat Financing Process
Shopping for a boat loan overlaps with the process of buying a new boat. Here are the basic steps:
- Know and understand your financial abilities and your credit rating. Check your credit with the major credit reporting bureaus and correct any inaccuracies.
- Call around to local resources and look online to find out what different boat lenders can do for you. Boat financing is not like financing a car where you can walk into a dealership and leave in a few hours with a new or used car. Boat financing can take longer if the lender requires a report from a marine surveyor.
- When you apply, be ready with tax returns and bank statements that show your financial ability to repay. Be prepared to submit those materials to speed up the review process.
- Be aware of special use limitations. If you want to live aboard your boat, use it for commercial purposes such as charters or as a fishing guide or to cruise internationally, tell the lender. Not all lenders will loan money on a boat used for those purposes.
Find Participating Boat Lenders In Your State
Other Things to Consider
Getting An Accurate Boat Value for Loan Purposes
Forewarned is forearmed, right? You bet it is, so if you’re looking at used boats, it’s also a good idea to understand what they’re worth. Boat lenders pay attention to boat values when lending, and you can access the same information they have.
Like credit reporting agencies, there are a few sources for researching boat values and prices. These resources can also help you determine the value of your own boat, which is great for getting a fair trade-in or resale price.
The key bit of guidance for securing a boat loan is to do your research and to be as prepared as possible.
“The lenders that BoatUS works with take into consideration the age of the boat and the value of the boat,” Mann said. “There is not a significant difference in available rates or terms between a brand-new boat or a 3-year-old boat, for instance. Since these lenders are looking at the value of the boat, they will typically require a down payment of around 10 to 15 percent.”
Get a Boat Loan Quote
Boat Trader has a convenient solution called Trident Funding that provides customers competitive boat loans tailored for different financial situations. Trident Funding can help with dealer and private party purchases, boat refinancing and title and Coast Guard documentation services.
Check Current Boat Loan Rates
If you want to check what your boat loan rate and monthly payment could be, use the Boat Loan Payment Calculator from our partners at Trident Funding to help you research that as well.
Below are some basic examples of monthly boat loan payments:
Down payment: 10%
Example payment schedule: 144 monthly payments of $135
Down payment: 15%
Example payment schedule: 180 monthly payments of $273.86
Down payment: 15%
Example payment schedule: 180 monthly payments of $531.10
Down payment: 15%
Example payment schedule: 240 monthly payments of $1,318.81
Frequently Asked Questions (FAQs)
How does a boat loan work?
A boat loan is a function of principle, an interest rate and the length of the loan. In general, smaller loans for shorter terms usually have higher interest rates than larger loans for longer terms. Also, higher credit scores help lower the interest rates you pay.
What information will I need to apply for boat financing?
Essentially, you will need bank statements and tax returns that demonstrate income. Banks also will consider your credit rating, your debt-to-income ratio, net worth and liquidity.
How do I know how much I can afford?
Banks can help you determine that, but you can also use the Boat Loan Payment Calculator from our partners at Trident Funding to find a payment you are comfortable with.
What credit score do I need for a boat loan?
The higher the better, as higher credit scores will help you secure loans at lower interest rates. There are subprime lenders out there, but by and large, major lenders want to see credit scores of 680 or above, and most prefer above 700.
How long do boat loans last?
Terms vary with the size of the loan and your ability to pay, but expect to have a loan term of 24 to 48 months for trailerable boats and up to 240 months — or 20 years — for larger craft.