When it comes to buying a boat, there are many things to consider. One of the most important is how you will finance the purchase. There are many different types of boat loans available, and it can be challenging to know which one is right for you. In this article, we will explain all the different types of boat loans available and the benefits and drawbacks of each one.
We will also provide tips on how to get the best interest rate on your loan and how to choose the right lender. So whether you are just starting your research or are ready to apply for a loan, read on for everything you need to know about boat loans.
What is a boat loan?
A boat loan is a type of loan that is specifically for the purchase of a boat. Boat loans are available from various lenders, including banks, credit unions, and speciality lenders. The terms of a boat loan will vary depending on the lender, but most loans will have a term of around five years.
The interest rate on a boat loan will also vary depending on the lender and the type of loan you get.
How do boat loans work?
Boat loans work in much the same way as other types of loans. You will borrow a certain amount of money from a lender, and then you will make monthly payments to the lender until the loan is paid off. The interest rate on your loan will determine how much you will pay in interest over the life of the loan. In general, it is best to try to get the lowest interest rate possible to save money on your loan.
You’d typically take out a boat loan to purchase a new or used boat. The loan amount you can borrow will depend on the value of the boat, as well as your credit history and income, as will the interest rate you’ll pay on the loan throughout its term.
What are the types of boat loans?
There are a few different types of boat loans available, and understanding them will help you know which boat loan is best for you right here with your current or future financial situation:
- Fixed-rate loan – With a fixed-rate loan, the interest rate on your loan will be set for the life of the loan. This means that your monthly payments will stay the same every month, no matter what happens to interest rates.
- Variable-rate loan – With a variable-rate loan, the interest rate on your loan can change over time. This means that your monthly payments could go up or down depending on changes in interest rates.
- Asset finance – Asset finance is a type of loan that uses the boat you are buying as security for the loan. This means that if you default on your loan, the lender can take possession of your boat.
- Unsecured boat loans – An unsecured boat loan is a type of loan where you do not have to put up any collateral. Using an unsecured loan can be arranged faster, but usually have higher interest rates than secured loans.
- Marine loan – A marine loan is a type of loan that is specifically for the purchase of a boat. Marine loans are available from various lenders, including banks, credit unions, and speciality lenders. The terms of a marine loan will vary depending on the lender, but most loans will have a term of around five years. The interest rate on a marine loan will also vary depending on the lender and the type of loan you get.
- Balloon payment boat loan – A balloon payment boat loan is a type of loan where you make smaller monthly payments for a certain period of time, and then you make a large payment (the balloon payment) at the end of the loan. This type of loan can be helpful if you want to lower your monthly payments, but it is essential to make sure that you will be able to afford the large payment at the end of the loan.
Where to get a boat loan
There are a few different places you can get a boat loan, including banks, asset finance providers and speciality lenders. Each type of lender will have different terms and interest rates, so it is important to shop around and compare offers before deciding on the best boat loans.
- Banks – Banks are one of the most common places people get loans, and they usually offer a variety of different types of loans. However, it is important to note that banks typically have higher interest rates than other types of lenders.
- Speciality lenders – Speciality lenders are lenders that specialise in loans for specific purposes, such as boat loans. These types of lenders usually have stronger knowledge of the market and may be easier to deal with than a bank.
- Asset finance providers – Asset finance providers take security over the boat that you purchase. This means that its usually easier to qualify for funding from an asset finance provider, but the application process takes longer than unsecured finance.
- Online loan providers – Several online loan providers offer boat loans. These lenders typically have lower interest rates than banks.
How to apply for a boat loan
Applying for a boat loan is similar to applying for any other type of loan. The first step is to shop around and compare offers from different lenders. Once you have found a few loans that you are interested in, you will need to fill out an application. The application will ask for information about your income, assets, and debts. You will also need to provide information about the boat you are looking to purchase. Once you have submitted the application, the lender will review it and either approve or decline your loan. If you are approved for the loan, the lender will send you a contract that includes the loan terms. This is known as a credit agreement, or loan agreement. Be sure to read over the contract carefully before signing it, as it is a legally binding document.
There are some requirements you’ll need to think about beforehand. These requirements can differ depending on which country you’re taking the loan out in, but within the UK, the standard requirements are as follows:
- You’ll need to be at least 18 years old
- You’ll need to have a good credit history
- You’ll need to have a steady income
- You’ll need to have a UK bank account
- You’ll need to have a UK address
If you meet all of these requirements, then you should be eligible for a boat loan. However, there will be some variables. For example, if you have a low credit score, then you may still be able to get a boat loan, but your interest rates may be much higher than if you had a stronger credit score.
What boat loan term can I borrow over?
The terms of a boat loan will vary depending on the lender, but most loans will have a term of between 3 and 5 years, although this can be longer for larger facilities.
What is the interest rate on the Boat Loan?
The interest rate on a boat loan will vary depending on the lender and the type of loan you get. Nevertheless, at the time of writing, boat loan interest rates tend to vary between 3% and 15%, but these will heavily depend on your credit scores, the loan term in years, and the current market conditions.
What are the advantages of a Boat Loan?
There are several advantages to taking out a boat loan. By understanding these, you can be sure that you are making the right financial decision for your situation. To start with, here’s a quick reference table comparing the advantages and disadvantages, and then the points in detail.
|Advantages of Boat Loans||Disadvantages of Boat Loans|
|You can spread the cost of buying a boat to make it far more affordable now.||It’s a long term commitment of credit and debt that can last up to 20 years.|
|You can use the process of a boat loan to grow and improve your credit score.||Interest rates are high because a boat is seen as a luxury item.|
|You can receive lower, specialist interest rates compared with other forms of credit, like credit cards and personal loans.||The requirements to acquire a boat loan are considered specific and strict.|
|You can afford to pay for the extras that allow you to buy a boat that’s just that much better than if you were on a tighter budget||There can be many additional costs that come with taking out a boat loan.|
- Spreading the cost – First, a boat loan allows you to spread the cost of the boat over a long time, making it more affordable. This means you can enjoy your boat sooner rather than waiting until you have saved up enough money to pay for it in cash.
- Building credit score – Second, getting yourself a boat loan can help you build your credit history if you make your payments on time. This can be helpful if you want to take out other loans in the future.
- Lower interest rates – While the interest rates on a boat aren’t precisely low, they are still typically far more affordable than that of a credit card or personal loan, especially when you consider the amount of money you need to spend to buy a boat.
- A better boat – Since you’re financing your boat and have access to more money when buying, this means you can opt for all the extras to help make your boat an even better experience for yourself. For example, if you have a limited budget, you might need to draw a line under all the boats with all the extras, like entertainment equipment, service plans, and GPS equipment.
However, you can afford all these extras with financing in place, making your boating experience much more enjoyable.
What are the disadvantages of a Boat Loan?
The disadvantages of a boat loan are:
- Long-term commitment – First, a boat loan is a long-term commitment. This means you will be making payments on the loan for a number of years, which can be a financial burden if your circumstances change.
For example, if you lose your job or have an unexpected medical bill, then you may struggle to make the boat loan payments. This could put your boat at risk of being repossessed. If you miss a payment or default on the loan, this will damage your credit score. This can make it difficult to take out loans in the future.
- They may have higher interest rates – As we mentioned, boat loans typically have higher interest rates than other types of loans. This means you will end up paying more money in interest over the life of the loan.
- Strict eligibility criteria – It can also be challenging to qualify for a boat loan if you don’t have a good credit history. Lenders will often have strict eligibility criteria, so it’s important to check this before you apply.
- Additional costs – Finally, there are also a number of additional costs associated with taking out a boat loan. For example, you may be faced with set-up fees or exit charges.
As with any financial decision, taking out a boat loan is not something to be made lightly. Be sure to do your research and compare offers from different lenders before making a decision.