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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 take the time to compare your options and choose the right recreational loan for your unique needs.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, with an average cost from $15,000 to $75,000, while more luxurious models can exceed $100,000. 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 a recreational loan. 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, in-house financing isn’t necessarily the best deal and can include some usage requirements. For instance, you might be able to use the funds for the boat purchase but not for the marina fees.
It’s usually best to shop around for a recreational loan to better understand what different lenders offer.
Comparing Recreational Loans
Online lenders can be appealing due to the convenient application process they offer, but you’ll often get the best rates from your local credit union.Credit unions can offer lower APRs and fees because they operate with a not-for-profit model. Plus, credit unions usually take the time to review each application individually and look at a broader range of factors that may make you credit-worthy. This member-centric approach can result in a higher approval rate.
There are a few additional factors to consider when choosing a recreational loan besides the APR:
- Some lenders offer secured and unsecured loans. Choosing a secured loan and using your boat or another asset as collateral will usually result in a longer term and lower APR.
- Find out about restrictions. Not all lenders are willing to finance boats past a certain age due to depreciation.
- Consider the loan term and how monthly payments will fit into your budget. This loan payment calculator is a helpful tool.
- Find out about any loan origination fees if applicable.
- Ask if the lender charges late payment fees or has a penalty for paying off your loan early.
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.
You can also purchase a policy based on the actual value of the boat or its actual cash value. An agreed-value policy will cover the total purchase price, while an actual-cash-value policy will consider depreciation.
If you finance your boat with a secured recreational loan, your lender will likely require you to insure the boat for the total amount you financed.
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 that apply to boat owners. These laws vary by state but usually require boat registration, limit the number of passengers at any given time, 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 of repairing or replacing 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 for Financing and Closing
Getting pre-approved for a boat loan isn’t mandatory, but it will help you set a budget when shopping around for a boat.You can also wait until you have found the perfect boat to apply for financing. The application process is similar to other loan types, and you can usually do it online or in person. Next, your lender will likely schedule a boat survey to verify the condition and value of the vessel.
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.
Explore Recreational Loans With PFCU
With these basics in mind, you're ready to start shopping for a boat loan that meets your needs.At Power Financial Credit Union, we make your dream of owning a boat accessible by offering affordable recreational lending options with flexible terms and low fixed rates. Find out more about our recreational lending options, or contact us if you have any questions about financing your boat purchase. Happy boating!