If you are looking to purchase a boat of your own and can’t seem to wrap your head around the boat loan financing process, there’s no need to get discouraged and abandon your dream of setting sail. The fact that the financing procedure for boats is somewhat similar to that of a new house or car must be a relief to potential customers like you. This article will provide you a complete breakdown of the process of financing your dream boat. Before delving right into our discussion, there are a few things that we need to get out of the way.
Firstly, If you are currently in the process of repaying loans for an already purchased boat, you are not eligible to buy a new one until you pay off the first loan. You may be thinking that what if I have an excellent credit score? To answer your question, it does not matter if you have a perfect credit score, as you need to be debt-free before financing a new boat.
Secondly, if you are interested in buying an older model boat that is 15 to 20 years old, your financing options could be limited. There is a high probability that your loan application will get rejected by most, if not all the lenders. The majority of banks and lenders prefer to provide financing options for more recent boat models. As a rule of thumb, models that fall within the 15-year mark from the date of release are more likely to get financed.
However, if you have set your eyes on an older yacht or a high-quality model and cannot convince yourself to settle for anything else, it would be a good idea to talk to as many lenders as you can. That will increase your chances of getting a decent financing plan.
What Are Boat Loans?
Boat loans are usually fixed-term, fixed-rate, interest-laden installment programs where payments are done every month, typically over 10 to 20 years. As mentioned earlier, the general idea of boat loans somewhat resembles other auto loan programs. But having said that, there exist a few notable differences between the two categories. Unlike some car dealers that may provide lower interest rates as a result of getting subsidies from manufacturers, the interest rate on boat loans is always the same as market rates.
How to Get a Boat Loan?
The first step is to find a lender, discuss interest rates and start your application process. Nowadays, most banks and credit unions have become go-to options for getting a good deal on boat loans. Once you have decided on what you want to purchase and the lender for purchasing or financing your boat, the next step is to gather all the personal information and documents required along the process. These include your income statements, credit history, tax returns, proof of liquidity, and boat maintenance expenses that you will have to spend alongside the monthly installments.
How Does a Boat Loan Work?
Most lenders will need you to make a down payment before they approve the loan. Generally, lenders will expect you to deposit a down payment anywhere between 10 – 20% of the entire cost to reduce the debt to income ratio. In certain situations where the boat value is under $50,000, you might be able to secure a deal without paying anything upfront.
However, this would largely depend on your credit score, income statements, and other credibility assessments. Buying or refinancing your boat becomes significantly easier with a good credit rating, and you could get a low-interest, fixed-rate loan. Putting more money as a down payment is also a smart idea and will help you borrow as little as possible.
The next step is to determine the loan term, usually somewhere between 10 to 20 years. The term could be shorter for less expensive boats.
As mentioned previously, the interest rate on your boat’s financing plan will get determined by the following factors:
1. Your credit score- The higher it is, the better your application will look to potential lenders.
2. The size of the down payment- The greater the amount, the lower the interest rate
3. The term and size of the loan- A longer-term means a higher interest rate
Another thing to keep in mind during this process is that you will need to arrange a boat owner’s insurance before your boat loan is approved.
Purchasing a boat is an exciting venture and is no longer a very tough task. Knowing what to expect can help you make smart financial decisions. Thus, if you play your cards right, you will easily be able to land yourself a good deal and avoid choppy financial waters in the long run.