Our family’s best memories often involve boating. We love getting out on the water, whether it’s a trip to the Keys, or a holiday sailing trip for some diving, or just an afternoon at Lake Boca. Our son really enjoys tubing — at 3 ½ years old! — a little blonde tuft of hair sticking out of this six-foot behemoth of a tube.
But boating can be an expensive hobby. While boat rentals are a compelling option, owning a boat may be your dream, whether for retirement or for quality time with your children. Financing can make boating more accessible. This blog post discusses where to finance your vessel, term lengths of boat loans, and what to expect from the application and underwriting process.
Where to Finance Your Boat
There are three broad categories of boat lending: banks and credit unions, marine-specific lenders, and through your boat broker or dealer.
Banks and credit unions can offer you a boat loan directly. Many are members of the National Marine Lenders Association (NMLA), an organization comprised of marine lenders and other associated firms dedicated to promoting the extension of credit to consumer and trade borrowers. Credit unions in particular may be able to offer attractive rates for their members, but check to see whether they focus in marine lending or have specialists on staff.
Marine-specific lenders are firms that have access to a myriad of local, regional, and national funding networks and exclusively originate loans to the marine industry. They are experts in marine lending, understanding both the ins and outs of boats and boating as well as the best financing options available for boat buyers. Many firms are also members of the NMLA as well. They may be able to turn around applications faster than money-center banks, though each borrower and loan situation is unique.
You can also access financing options through your boat broker or dealer, who in turn can access larger financial institutions like banks and credit unions as well as marine-specific lenders. Dealers have been in this business for a while and have a vested interest to make sure that the loan process goes smoothly for you.
Boat Loan Terms
Boat loan terms can be adjusted in a multitude of ways, but there are several industry standards. Most boat loans terms are for fifteen or twenty years. Marine lenders, given their ability to tap different warehouse funding options, may be able to offer longer terms than money-center banks or credit unions.
Down payments will depend on a variety of factors, such as the age, price, and type of vessel, and your own credit profile. You can expect, though, to put down between fifteen and twenty percent for most center consoles or sport fishers.
Loan interest rates vary with the economy and the overall interest rate environment. Similar to real estate mortgages, you can access fixed or floating rate options, as well as different amortization schedules. Further, loan interest rates may differ between a purchase and a refi of an existing loan.
While finding a competitive rate is important, other considerations should come into play as you evaluate your loan terms, such as your timeline for owning the vessel as well as the interest rate versus down payment options. Additionally, loan terms may differ for new boats compared to used boats.
Application and Underwriting Process
Prior to getting to the point of financing, making sure that you can afford the down payment, monthly loan payments, insurance, gas, and ongoing maintenance.
Similar to the process for getting a home mortgage, there are certain pieces of information you will need to provide as part of the application process. You will likely be asked to provide financial asset and income statements, credit reports, and tax returns. Your lender will provide you with a comprehensive list of all required documents at your initial meeting.
Lenders will verify your income and assets and check your credit history, particularly whether or not you’ve managed loans of this size before. Lenders also like to see liquid assets that can support twelve to sixteen months of payments. Further, steady employment and a primary residence are all part of the application process.
Insurance is required and will need to be finalized before your loan closes. Most boat loan specialists can provide you with the names of reputable, and approved, insurance agencies.
Loans for a new vessel can typically be closed within a week, though financing for used vessels takes longer. Used boats may need a survey or appraisal to assess the vessel’s value. Additionally, a title search will be needed to ensure there are no outstanding liens.
Note, many lenders will not finance a vessel for charter use, though there are commercial lenders for this type of activity. Occasionally, lenders may allow chartering for up to twenty percent of the vessel’s use, but the loan process differs for this.
Additionally, other tangible property can be included in the boat loan, such as marine electronics, anchoring packages, and bottom paint. The labor to install these, however, cannot be financed in a traditional boat loan.
Financial Planning with Harbor Crest Wealth Advisors
Want to enjoy the water with your family but aren’t sure how the purchase of your dream boat fits into your financial picture? If you have additional questions or would like to learn more about how we help families manage their finances.