How a personal loan for a boat works
A personal loan is money you borrow from a lender and repay with interest, typically in equal monthly installments. Frequently, when someone says "boat loan," they're referring to a personal loan used to purchase a boat.
Pros and cons of personal loans
If you're considering a personal loan to buy a boat, it's wise to weigh the pros and cons.
Pros
- You can borrow the money needed to purchase a boat outright or at least pay a portion of the boat price, with some lenders offering loans as high as $50,000 to $100,000.
- Personal loans may be secured or unsecured, meaning you can choose which type of loan works best for your situation.
Cons
- You're charged interest on the loan, and if your credit score is low, your interest rate may be higher than expected.
- You must add a new debt to your monthly budget.
- If you decide to take out a secured loan to snag a lower interest rate, you risk having the boat repossessed if you miss payments.
Be sure to weigh all these factors before applying for a boat loan.
Getting a low-interest boat loan
When borrowing money, the goal is to land the lowest possible interest rate. Here are some factors that go into deciding your rate.
Your credit score
If you have a high credit score, you have a far better chance of being offered a lower interest rate.
Employment and income
Your interest rate may be lower if you're employed and can show a lender that you can afford to make monthly payments.
Secured or unsecured
If you're buying a boat with loan proceeds, a secured loan requires that the vessel be used as collateral. While you're likely to land a lower interest rate, you also risk losing the boat to repossession if you miss payments.
Your repayment timeline
Lenders consider longer-term loans risky, and they may try to offset the additional risks by charging a higher interest rate. Frequently, shorter-term loans offer the lowest rates.
How to apply for a boat loan
Financing a boat is a straightforward process. Here's how it works.
1. Check your credit score
The higher your score, the better the interest rate and repayment terms you will be offered. Before you do anything else, check your credit score and order a copy of your credit report. If it's low, take steps to raise your credit score. For example, try to pay down credit card debt and make sure there are no errors on your credit report.
2. Decide how much you want to borrow
Monthly loan payments are not the only cost of owning a boat. You will also pay for boat insurance, maintenance costs (which can add up quickly), winter storage (depending on where you live), dock rental, and a way to tow the vessel. Make sure your budget includes all the necessary expenses.
3. Shop for the best boat
Shop for the boat you want at a price you can afford. Don't forget you may be required to make a down payment of 10% to 20%.
4. Rate shop
Once you find the perfect boat, it's time to rate shop lenders. Remember that interest rates only tell part of the story -- instead look at the APR, which includes interest, fees, and other charges.
Be aware that potential lenders will do a hard credit inquiry, which dings your credit score slightly. However, making regular on-time payments will quickly cause your score to rebound.
5. Decide on a lender
Once you've determined which lender offers the lowest APR and best repayment terms, accept the offer, sign a loan agreement, and make your first payment approximately one month later.
