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Boat Loans — Understanding the Basics

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You've found your dream boat and are eager to sail into the sunset, but you may need a loan to enjoy this experience. Before settling for any boat loan, you should learn how it works. Let's explore what you should look for in a boat loan to get the best deal, including the down payment, boat insurance, and qualification process.

Understanding boat loan basics

A boat is a big purchase, and like a house, you usually need a loan to finance it. The price of a new boat varies by type of boat, with an average cost from $40,000 to $60,000. But boats depreciate faster, so it's essential to factor that into your decision.

Before taking out a boat loan, you should know how much you can afford. Remember, the total cost of owning a boat goes beyond the purchase price—you also need to factor in maintenance and repairs, storage fees, fuel costs, insurance, and trailer price (if needed).

Once you have a realistic budget, you can start shopping around for loan options. Several types of boat loans are available, but the most common are secured loans, unsecured loans, and dealer financing. Secured loans are backed by collateral, typically the boat itself, so if you default, the lender can seize your boat. Unsecured loans don't require collateral, making them riskier to lenders, so they usually have higher rates.

Many boat dealerships offer in-house financing, which can be convenient if you buy your boat from a dealer. However, it's often more expensive than other loan options. To find the best deal before settling on a loan, compare interest rates, loan terms, and monthly payments. Rates vary by lenders, so it's essential to shop around. Estimate your monthly payment with a boat loan calculator.

Putting a down payment on a boat loan 

Most lenders require a down payment on your boat loan. The down payment size varies by lender, but at least 20% of the sale price is a good place to start.

The down payment serves as collateral for the loan and shows the lender you're serious about making your payments. It also helps you get a lower interest rate by lowering your borrowing amount. If you can't afford a large down payment, you may still be able to qualify for a boat loan, but you'll likely pay a higher interest rate.

Getting insurance and knowing the law

Once you have a boat loan, you'll need insurance to protect your investment. Boat insurance is like car insurance, but with a few key differences.

The two types of boat insurance coverage are hull and liability insurance. Hull insurance covers damage to your boat, while liability insurance covers injuries or property damage it causes. Most lenders will require you to have both types before approving your loan.

Boat insurance rates vary depending on the type of boat, where you live, and how often you use your boat. You can get a boat insurance quote from several insurers to find the best rate. With the average boat insurance claim being around $11,000, you want to be sure that your policy has the right amount of coverage.

In addition to having insurance, you need to be aware of a few laws when owning a boat. These laws vary by state but usually require boat registration, limit the number of passengers on board, and require safety features like life jackets. Check with your state's boating laws before heading out on the water, and make sure your policy covers the actual value to repair or replace the boat.

Verifying income and employment

Lenders usually require income and employment verification when you apply. This ensures you can afford the monthly payments and are not at risk of losing your job and defaulting on the loan.

The most common way to verify your income is with pay stubs from your employer. You may also need to provide tax returns or bank statements as proof of payment.

To verify employment, the lender will usually contact your employer directly. They may also require you to provide a copy of your employment contract or offer letter. You may need to provide other documentation, such as tax returns or bank statements, to verify your income if you're self-employed.

Applying and closing

Once you've found the perfect boat and a loan that meets your needs, it's time to apply for financing. The application process is similar to other loan types, and you can usually do it online or in person.

Once you've received the funds, you can close on the loan by signing the contract and making any final payments. You'll then be the proud owner of a new boat! Now that you have the keys, you can start enjoying the open water.

With these basics in mind, you're ready to start shopping for a boat loan that meets your needs. If you have more questions about boat loans, please contact us. We have helped countless members turn their dreams of owning a boat into a reality.

Happy boating!