There are so many frequently asked questions about buying a boat because it's a little tricky. Buying a car? Straightforward. Buying a house? Straightforward. Buying a boat... slightly more complicated. Buying a boat requires jumping through extra hoops because it is seen as a want versus a need. From a lender's perspective, this means if someone gets into financial trouble, they'll probably stop paying for the boat before anything else. However, despite the potential struggles, buying a boat is in the reach of many consumers. Below are frequently asked questions about buying a boat so you can make an informed decision before moving forward.
What Type of Boat Is Eligible for a Loan?
Financing is available for every type of vessel: bass boat, cuddy cabin, pontoon, bowrider, deck boat, powerboat, express cruiser, cabin cruiser, pleasure boat, wakeboard boat, yacht, open bow, ski boat, cruiser, sailboat, runabout, fishing boat, trimarans, catamarans, center console, houseboats, electric boats, classic boats... You name it. If you find a boat you want, there's a lender out there that can handle the financing.
Should I Get a New or Used Boat?
Of all the frequently asked questions about buying a boat, this one is possibly the most important. It's the biggest money-related decision to make when buying a boat. As with most assets, boats follow a 'hockey stick' curve. Expect 10 percent depreciation in the first year. Prepare for a further six to eight percent during the subsequent four or five years. Depreciation slows after this period. Eventually the price of the boat will slowly climb if kept in good condition and has a good pedigree. Financially speaking, buy a used boat that's at least five years old. That's the sweet spot. Read this article for how to get a used boat loan.
What Credit Score Do I Need to Buy a Boat?
The credit score needed to secure a low-interest boat loan is similar to the optimum score for buying a car or a house. Before shopping for a boat loan, it's a good idea to check your credit score and credit report. Anything over 700 and you shouldn't have a problem.
What Kind of Terms Come with Boat Loans?
Because boats have longer lives than cars, many boat loans offer longer lifecycles. This means very low monthly payments. Monthly payments can be had for less than $250. Expect loans up to 20 years. Interest rates are low as well – typically between three and seven percent.
The down payment depends on a variety of factors: the age, type and price of the boat. Down payments are typically in the 10-20 percent range.
Can I Live on a Boat and Get a Mortgage Instead?
The only way to get a mortgage on a 'boat' is by getting a floating home. A floating home is meant to be stationary: no propulsion system and it must be permanently anchored. A houseboat, for instance, moves so it gets categorized as a recreational vehicle. So if you ever plan on moving the home, it can't be mortgaged.
What Do Boat Loan Agreements Look Like? Any Hidden Surprises?
First, you will need to provide the following to the lender:
- Your name, address, phone number
- Employment information
- Tax information for the past two years
- List of monthly bills
- Personal financial statement taking into account all assets and liabilities (this is used to examine your net worth in case you lose your job but still have a boat with a loan)
- Year, make, model, power, options, upgrades done to the boat
- Total cost of asset including purchase price, additional accessories
- Sales tax
- Registration and title (or document showing these expenses)
Most boat sales are subject to sales and/or property taxes. Proof of full payment or a payment plan is required before getting the loan. Lenders also want to make sure their money is going toward a quality purchase. The lender will need to compare the sales price with similar boats on the market. This may mean dialing a few boat experts. A marine survey by a professional surveyor will likely take place. Surveyors typically charge $11-$13 per foot. The lender will run a typical loan-to-value calculation.
Can I Get a Loan That Also Covers Extra Equipment, Insurance, and Maintenance and Repairs?
Many lenders, specifically marine lenders, will finance extras. This can include optional equipment, electronics, life and/or liability insurance, and maintenance and repair plans. Repairs and maintenance alone typically cost five to 10 percent of the vessel's value annually. Insurance costs about one to three precent of the value of the boat per year.
What Types of Boat Loans Are Available?
Getting a boat loan is similar to getting a home loan in that there are many loan types:
Simple interest loans are the most popular way to buy a boat. This is a fixed-rate, fixed-term loan. You could instead choose a variable rate loan. Variable rate loans typically have a low introductory interest rate. The rate is tied to an index such as the LIBOR. Interest rates can either change sporadically or at a predetermined period. A boat can also be had using the balloon payment method. This means that the entire balance of a loan will come due at a predetermined future date.
How Do I Find a Lender Who Will Accept Me?
Banks, credit unions and various financial service companies offer boat loans. Many of these lenders will be members of the National Marine Lenders Association. The fastest way to find lenders is by using the LendingTree where you can comparison shop different boat lenders, which will save you money on your loan.
This article should have answered all the frequently asked questions about buying a boat. Now go have fun out there!