Bad Credit Boat Loans: What Are They and How to Get One
Even if you have a FICO credit score in the mid-500 range, it’s possible to get a boat loan. You’ll most likely pay a higher interest rate, be required to make a down payment of at least 10%, and may be subject to additional fees, however. Bad credit boat lenders may have restrictions about the type of new or used boat you can purchase with bad credit as well.
That doesn’t mean you should take the first loan that comes along. Here’s what you need to know about bad credit boat loans if you want to finance the purchase of your boat but have some financial challenges in your past.
- Check your credit score
- Understanding bad credit boat loans
- How much boat can you afford?
- 3 ways to get a boat loan if you have bad credit
- Boat loan alternatives
- What to do if you aren’t approved
- How to rebuild your credit
Check your credit score
A smart step before applying for a boat loan, or any major purchase, is to check your credit report. You can do this in several different ways, including signing up for a free credit score check and tips for improving your credit through MyLendingTree. FICO, one of the two primary credit-scoring companies in the U.S., ranks scores from poor to excellent, 300 to 850. Lower credit scores indicate to potential lenders that you may be a risk for defaulting on future loans or will not make payments on time.
However, credit score isn’t the only thing lenders will consider but bad credit can make it more difficult to get a mortgage, land a job or yes, be approved for a loan on that boat you’ve been eyeing. Boat lenders typically look for higher credit scores because they are considered luxury items, not necessities like a home or even a car. “Bad” credit for a boat loan may be around 550.
Understanding bad credit boat loans
While there are lenders specializing in credit products for people with credit scores in lower ranges, it’s important to understand that you’re likely to pay a higher interest rate — as much as 20% APR or more — plus fees such as a $399 document fee, a $100 origination fee, or an application fee. We even found one lender charging 2.41% to 5.00% of the total loan amount as an origination fee.
Expect to make a significant down payment of at least 10% to 15% of the purchase price. Lenders may limit the amount you’re able to borrow, which could restrict the type of boat you can buy. You may also have to meet other criteria such as a certain debt-to-income ratio.
By comparison, those with excellent credit receive more favorable rates and terms. At time of publication, we saw APRs as low as 4.29%, amounts up to $5 million and loans that didn’t charge origination fees or require a down payment, though more expensive boats would most likely require a 10% to 20% down payment whether your credit is good or bad.
How much boat can you afford?
Because a bad credit boat loan will cost you more, it’s even more important to understand how much boat you can afford. Use a boat loan calculator to understand exactly how much money you can spend on a boat, according to your budget. Plug in your potential loan amount, estimated interest rate, and the length of the loan you’d like to get. The calculator will show you exactly how much your monthly payment will be.
For example, if you finance a $50,000 boat with 10% down at 18% interest for 15 years, your monthly payment is $724.69. Spend another $20,000 for a total of $70,000 with 10% down at the same interest rate, and your monthly payment jumps to $1,014.57.
Costs of boat ownership
Of course, owning a boat involves more than just making a monthly loan payment. Be sure to carefully research insurance costs, off-season storage and mooring or docking fees, fuel, maintenance and repairs when you calculate how much money you can spend on a boat. If you use the boat in saltwater, expect maintenance costs to be higher than if you use it in freshwater. Marina storage varies widely according to your geographical location, the type of boat you own, and whether you choose inside or outside storage. For example, a 21-foot boat could cost as much as $300 to shrink wrap for outside storage. Inside storage for the same boat would cost $1,000.
3 ways to get a boat loan if you have bad credit
Even with credit challenges, you have some options when you are ready to buy a boat.
Subprime boat loans
While the best possible interest rates and terms are available to those with the highest credit scores, a subprime boat loan may help you finance your boat even if you have bad credit.
- Approval for FICO credit scores as low as 550
- Financing available even with a previous bankruptcy
- Loan terms generally up to 12 to 15 years, depending on the finance company
- Restrictions on the boat you’re able to finance
- Must have verifiable income
- Interest rates for the lowest credit scores can reach 19.99% +
- Loan amounts may be capped
Variable rate boat loans
Boat dealers may offer variable rate loans, loans with a set introductory low interest rate that changes to a rate that can go up or down depending on market indexes. Before agreeing to this type of loan, make sure the payment after the rate adjustment fits into your budget. This type of loan may be more common for larger and more expensive boats, which may require good credit.
- Payments are lower during the first months of the loan
- Loan terms may be as long or longer than with a traditional boat loan
- Monthly payments could go up, making it tough to keep up with payments
- Longer loan terms mean you’ll pay more interest over the life of the loan
Hard money boat loans
Hard money lenders are private investors that might handle the loan approval process differently than traditional lenders. They evaluate loans individually and base their decision solely on the borrower’s ability to repay the loan. This type of loan may not even require a credit check.
- Terms may be negotiable
- Get a decision in less than a day
- Financing for unverifiable income, self-employed, or high debt ratio
- Maximum loan of 65% of the boat’s value
- May not be available for smaller boat loans under $75,000
- Short loan terms of one to three years
Alternatives to boat loans
Getting a boat loan isn’t the right move for everyone. If your credit score is low but you have a reliable income and a good relationship with your credit union or bank, you may be able to get a secured personal loan with better terms than a subprime boat loan. Brick-and-mortar lenders and online lenders offer unsecured personal loans, but you would most likely have to have good credit to get approved.
Personal loan pros:
- You may be able to get approved for a personal loan with credit scores below 499
- There are lenders offering bad credit personal loans, so you can choose the terms that best fit your budget.
Personal loan cons:
- You may pay an origination fee.
- Terms may be shorter than a bad credit boat loan: 24 to 60 months.
- Interest rates could reach the legal limit for your state, which is as high as 35.99% in some places.
Pay cash instead
If you have the cash available to pay for the boat, you could get a hefty discount on the selling price and save hundreds, if not thousands of dollars in fees and interest while you work on repairing your credit.
What to do if you aren’t approved
- Get a cosigner — Ask someone you trust — and trusts you — to sign the boat loan with you. This person should understand their responsibility to repay the loan if you default. If your boat lender doesn’t allow co-signers, it’s possible it offers personal loans that do. Remember the pros and cons of personal loans that we discussed earlier.
- Make a healthy down payment — Your debt-to-income ratio is a key ingredient to getting approved for a boat loan. By paying a healthy down payment, beyond the 10% to 20% that may already be required, you’re lowering the amount of debt you would be taking on with a boat loan, thus improving your DTI. It may not be enough to get approved, but it’s worth a shot.
How to rebuild your credit
You can repair your credit even while you shop for a boat loan. The best way to understand your current credit situation is to look closely at each of your three credit reports with TransUnion, Experian and Equifax. You can access these reports for free once every 12 months from AnnualCreditReport.com or by calling (877)322-8228. Check them carefully for mistakes. Each credit bureau has a section of its website dedicated to helping consumers resolve errors on their credit reports. If you get a boat loan, be sure to make every payment on time and in full to help build your credit. You may also consider opening a secured credit card with low fees to help establish a solid payment history.
Credit repair companies that offer to “fix” bad credit in a short amount of time in exchange for a fee often perform services that consumers can easily handle themselves. Before signing up with one of these services, spend some time researching the company and reading reviews. According to the Credit Repair Organizations Act, credit repair companies can’t legally accept upfront fees until they’ve kept their promises about fixing your credit.
The bottom line
Buying a boat is a dream come true for many people. However, if bad credit makes it difficult to get low-interest financing with good terms, it may be smart to put off the purchase until you can fix your credit.
When researching your boat loan, be sure to use a loan calculator to understand how much money you can spend without going over your monthly budget. Some boat loan options could drive you deep into debt and worsen your credit situation, so it’s crucial to proceed with caution.
Be sure to shop around and consider all options before signing paperwork on a boat loan or personal loan if you have credit challenges. You could fill out a single online form at LendingTree and receive loan offers from lenders, based on your creditworthiness.
The information in this article is accurate as of the date of publishing.