Acquiring a boat is the perfect way to adventure on the open waters. From pontoon boats to cruising yachts, buying a boat can be an expensive investment. If you’re trying to buy your dream boat, you need to know how to manage the high upfront costs.
In this guide, we’ll go over the various financing options for buying a boat so you can sail into the world of boat ownership with an informed financial decision. We’ll explore how personal loans can be used to cover some of the costs associated with purchasing a boat and the factors to consider when choosing this method of financing.
Personal loan basics
You can borrow personal loans from credit unions, banks, and online lenders. A personal loan provides you with a lump sum of money that can be flexibly used. Over time, you will repay the principal loan balance in installments, along with interest. Interest rates range between 6 and 36 percent depending on the lender’s evaluation of your loan application.
Personal loans are typically unsecured, which means you don’t need to put up any assets as collateral. Lenders instead evaluate your loan application based on two main factors: your creditworthiness and financial standing.
Characteristics of a personal loan
Flexible fund usage
Compared to loans for specific purposes, personal loans have very few restrictions. If you want to buy a boat, any remaining loan funds can be used for other financial goals and needs. The versatility allows you to pay for other boat accessories, upgrades, and services.
Versatile loan amounts
If you have good to excellent credit, you can be approved for high borrowing limits. This can be helpful if you want to finance your dream boat. Reputable lenders usually let individuals borrow up to $100,000 in personal loans, which is enough to buy a sleek new boat.
Fixed interest rates
An advantage to using a personal loan for boat purchases is the fixed interest rate. Most personal loans are fixed rate loans with predictable monthly payments. While personal loan interest rates range between 6 and 36 percent, having a good credit score can help you obtain lower interest rates.
Variable rate loans are generally not recommended for boat-financing purposes. This is because a variable interest rate fluctuates over the life of the loan, which can result in you paying extra in interest. This unpredictability meshes poorly with the large loan amounts of the long-term loans used for buying a boat.
Advantages of using a personal loan for a boat
Unlike personal loans, boat-specific loans will require you to offer an asset as collateral. This collateral is often the boat you’re looking to buy, which means if you defaulted on the loan, the loan provider would be able to repossess your boat.
Having no need for collateral helps reduce your risk as a borrower and boat owner. You can be more confident in your boat purchasing decision knowing that you won’t need to put up the boat as collateral.
It can take you a long time to go through the boat loan approval process. In contrast, the personal loan application and approval process can be much faster. With fewer eligibility requirements, personal loans are generally easier to obtain than standard boat loans.
If you truly need the funds urgently, you might even want to apply for a same-day personal loan or expedite the process by paying an extra fee to lenders offering that option.
No down payment
Boat loan lenders often expect borrowers to make a down payment when buying a watercraft with the boat-specific loan funds. This can raise the upfront cost of buying the boat than if a personal loan were used instead. Personal loans usually don’t come with down payments, so you can minimize the amount you need to pay upfront.
Disadvantages of using a personal loan for a boat
Higher interest rates
A personal loan might have an interest rate higher than those of boat-specific or secured loans. This might result in a more expensive total cost of borrowing as more interest would accrue over time.
Shorter loan terms
A traditional boat loan term averages between 10 and 20 years. However, personal loans usually have loan tenures of 7 years or less. This means that you will likely have less time to repay the loan.
Potential for overspending
Since the loan is not specifically designated to be used for the boat purchase, you might end up borrowing more than you need or spending the loan funds irresponsibly. In addition, borrowers who struggle with debt management may find personal loans frustrating to repay over a long period of time.
Lower loan amounts
If you’re eyeing a yacht or other type of luxurious, high-quality boat, it’s likely that a personal loan won’t suffice. Watercraft can cost hundreds of thousands of dollars, with luxury models costing over a million. Personal loans with the standard maximum loan amount of $100,000 will not grant you enough funds for this kind of boat.
Boat loans vs. personal loans
The two primary financing options for a boat are personal loans and boat loans. Since your financing strategy can heavily impact your financial security and overall cost of buying your boat, it’s essential to understand the pros and cons of each type of loan.
Let’s go over the key differences between boat loans and personal loans.
Boat loan: A boat loan is specifically designed to cover boat purchasing costs. Boat loan providers often give borrowers a list of approved loan purposes, which may include boat model restrictions.
Personal loan: A personal loan can be used for a wide variety of purposes. Personal loans are commonly used for debt consolidation, emergency medical expenses, home improvement projects, weddings, and other major purchases.
Boat loan: Boat loans require you to choose a valuable asset as collateral. Usually, this means that the boat you’re financing will be put up as collateral. If you default on the loan or breach the loan terms, the lender can seize the collateral, resulting in the loss of your boat.
Personal loan: There is no need for collateral if you go for an unsecured personal loan. However, if you’d prefer a secured personal loan due to wanting lower interest rates, you can search for secured loans.
Boat loan: Because boat loans are backed by collateral, the lender takes on less risk, resulting in the ability to offer lower interest rates on average. If you have good credit, you can expect boat loan offers to come with interest rates below 10 percent.
Personal loan: If you choose to shop for unsecured personal loans, it is likely for their interest rates to be higher. Personal loans range from 6 to 36 percent interest rates, varying greatly depending on your financial standing, creditworthiness, and other determinants.
Boat loan: Boat loans have long loan terms of ten to twenty years. This long loan tenure gives borrowers ample amounts of time to repay the boat loan. The downside to a longer term is that more interest can accumulate, resulting in a potentially higher cost of borrowing.
Personal loan: Most personal loans don’t go over a long duration of seven years. This gives borrowers less time to repay the loan. However, this can also reduce the cost of borrowing since it can reduce the amount of interest you might need to pay.
Restrictions and limitations
Boat loan: If you use a boat loan to buy a boat, the lender might impose various restrictions on how you can use the funds. For example, you might be limited to a certain boat model, boat age, or boat condition. These specialized terms can make it harder for you to find a suitable boat loan.
Personal loan: Personal loans are highly versatile loans. You can use them for general purposes, including buying a boat. The flexibility of a personal loan is one of the reasons it might be preferable to a traditional boat loan.
Boat loan: Since boat loan providers target borrowers who are buying expensive watercraft, they know that they need to grant higher loan amounts. Many boat loan lenders grant higher maximum loan amounts than personal loan lenders. If you need to finance a vessel of several hundred thousand dollars, a boat loan might be the preferred choice.
Personal loan: Personal loans may be used for a broad range of purposes. Even a $20,000 personal loan would be considered a large amount of loan funds. If you want to finance a boat using a personal loan, it’s a good idea to find a loan provider known for granting high loan amounts.
Factors to consider when financing a boat with a personal loan
It’s important to assess whether you can make the monthly payments for the loan. The monthly payment of an installment personal loan usually includes a fixed portion of the loan plus interest.
In addition, consider any fees and charges you might need to pay. Make a note of the late payment fees and early repayment fees, as well as any other lender fees.
Total boat cost
Other than knowing the cost of the loan, it’s also crucial to take into account the total cost of the boat. After you buy a boat, you will likely need to consider:
- Maintenance and repair fees
- Docking fees
- Winter storage fees
- Boat insurance
If you’re buying a boat with great performance and a well known brand name, the boat is likely to retain its value over the years. For example, if you’re taking out a loan to buy a Boston Whaler or a Bayliner, these brands are known to hold their value well. On the other hand, if you’re financing a lesser-known boat model, make sure you’re aware of how much the boat is expected to depreciate in value.
Application tips for those considering a personal loan for a boat
Research multiple lenders
Researching different lenders can help you find the optimal loan for buying your boat. Since boats are a substantial financial investment, even a slight interest rate difference between loan providers can make a significant difference over the life of the loan. Make sure you find a lender with good reputation, suitable loan terms, and competitive interest rates. The ideal lender should provide you with a loan that aligns with your current needs as well as future goals.
Improve your credit score
Your credit score can greatly impact your loan terms and rates. The higher your credit scores, the better your chances of obtaining a good loan offer with low interest. Boosting your credit score before taking out a personal loan for a boat can help you reduce the overall cost of borrowing, while also making it easier to be approved for a competitive loan.
Here are common ways to improve your credit score.
- Pay your bills on time
- Reduce your credit utilization across your credit accounts
- Improve your credit mix by having both revolving and installment credit
- Keep older accounts open to maintain a solid credit history
Be transparent about your loan purpose
If the loan provider asks you to talk about your loan purpose during your loan application process, it is vital to be transparent. If you aren’t honest about your loan purpose, it can result in serious credit and loan repercussions later down the line.
Understand all terms and conditions
Carefully review the loan terms and conditions before signing a loan agreement. The fine print may include details that make the loan unfavorable for you even if the loan looks suitable at first glance.
If you’re not sure about a loan requirement, clarify with the loan provider. It could also be beneficial to seek out a financial advisor or credit counselor for individualized guidance.
It’s important to weigh the pros and cons of using a personal loan to finance a boat. Here are the key characteristics of taking out a personal loan for a boat you should know about:
- A personal loan is easier to obtain than a boat-specific loan
- Personal loans don’t need to be secured by collateral
- You can enjoy versatile fund usage
- The better credit score you have, the lower the personal loan interest rate
- Personal loans usually have loan terms of seven years or less
- If your boat costs over $100,000, a personal loan might not grant you enough funds
Additional resources and further reading
Here are a few handy links that can help you with finding a suitable personal loan for boats.
Personal Loans Company Reviews
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