There are a lot more options for financing a boat these days than there used to be, and in this article, we’re going to talk a bit about them. We’ll be covering the pros and cons of each method, and how to get the best interest rate depending on your situation.
Credit score needed for a boat loan?
Having a credit score of 700+ is ideal for securing boat financing, but a score in the 660 range is still do-able. However, the lower your score, the more you’ll be paying in interest. So, it’s important to keep that in mind. if your score is not as healthy as it should be, it may be worth doing a bit of clean-up work before you go loan shopping.
Average boat loan interest rates
You can expect to pay 3-7% on a boat loan depending on what kind of financing you choose. If you buy a boat under $25,000 and you use a traditional marine lender, you’ll be on the upper end of this interest rate. If you buy a boat using a less conventional option, like a home equity loan, then you’ll likely be able to get a much, much better rate. This will, of course, also depend on your credit score.
PS. Interested in seeing how much boat you can afford? Check out our boat financing calculator!
Financing options for boats
Home Equity loan
If you own a home and you have a bit of equity you can pull out, this is probably your best bet. Home equity loans generally have the lowest interest rate of all three loans, mainly because the bank knows you are definitely going to pay back a loan tied to your house!
However, they also offer less hoops to jump through than conventional boat loans, and longer repayment terms. This means that while the cost will be the same, the payment will be spread out longer, making a boat more affordable month to month. You can expect an interest rate of somewhere around 3-5% here at the time of writing, and you won’t need a down payment.
While many people think a home equity loan must be used to perform home repairs, it’s not true. The bank doesn’t really care what you do with your loan as long as you stick to the repayment schedule and they make their money.
If you don’t own a home, or if you don’t have enough equity – a personal loan could be up next. These loans are generally quicker to process than a home equity loan, but you’ll probably pay a bit more in interest. A personal loan does not require collateral, and so the rates vary greatly between lenders and based on your personal financial data.
While you can get loans for 5-7%, watch out! Some personal loan terms have interest rates as high as credit cards, and you’ll need to check the fine print carefully before proceeding. This is especially true if your credit score is not the best. However, a personal loan also will not require a down payment.
Dealers offer loans too, and the benefit of going this route is that nobody is going to work harder to get you a loan for a boat than a dealer looking to make a commission. However, you will likely be expected to produce a 10-20% down payment, and interest rates are harder to shop for if you go this route. So, buyer beware.
If you want to know what kind of terms you can get – there’s no way to know unless you go to your local dealer and see what they’ve got to offer. Make sure to make a list of all the dealers in your area so you can compare their offers and inventory.
marine lending specialist
There are also marine lending specialists you can go to. However, I feel the terms for these “deals” are not as favorable as the first two options. You’ll most likely pay more in interest than you would with a home equity or personal loan, you’ll need a hefty down payment, and they also tend to have a lot of stipulations about what kind of boat you can buy and how much it costs.
Interest rates also go up dramatically here if you buy a cheaper boat! So, if you’re looking to get something used that’s under around $25,000 – then a marine lender will likely NOT be your cheapest option. This is good news, however, if you’re looking to buy an expensive boat for a charter business though, so you may want to check with them in this case as rates tend to go down with pricier vessels.
In short, if you can get approved for a car loan, you can likely get approved for a boat loan. Lenders will look at the same factors they always do – which includes credit score, debt to income ratio, and job stability. In fact, having steady employment is likely the most important thing you can do to secure a loan for yourself for pretty much anything.
However, don’t just jump at the first offer that comes your way, or give up if you get one rejection! There are lots of lenders out there and different ones may have different criteria for approving or rejecting you. Get more than one offer to get the best terms for yourself.