How to Finance a Boat Purchase

by Spero Financial

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With warmer weather comes more time outdoors, and for those who have access to waterways, the desire to own a boat increases. But when it comes to buying a boat, what do you need to know? In this post, we’ll explore all the aspects of boat loans and what it takes to sail home on your very own watercraft.

Should you buy a boat?

To determine if boat ownership is right for you, you should first identify what kind of boat would suit your lifestyle best. Also, determine how often you’ll use it and how you will store and maintain it. Consider a few things, first:

Frequency of Use: How much will you actually use a boat? Do you currently hit the water just a few times a year, or are you there as often as possible? Do you enjoy or miss any water activities — like fishing, tubing, or water skiing — that a boat would allow you to enjoy on a deeper level? If not, or if you only go to the water a few times a year, you may want to consider renting or borrowing a boat instead.

Type of Use: What kind of boat are you looking to buy? Do you want a pontoon that can host a party of people? Or are you considering a fishing boat that can go out over open water? A boat’s utility will often determine how much and how often you’ll use it, but the type of boat you want to purchase will also dictate the costs you might incur.

Maintenance and Storage: Storing a boat in the off-season can require a bit of effort and generate some additional costs — are you ready for them? Depending on what kind of boat you choose, you might need an extra garage, an all-weather boat cover, or a private slip. These add-ons can be expensive, and each would factor into whether you will be able to care for a boat after you buy one. 

What does owning a boat actually cost?

Should you choose to move forward and purchase a boat, you need to look at the true cost of ownership, not just the sale price. That actual cost of boat ownership includes the following ongoing costs:

  • Registration/Taxes (South Carolina requires three-year registration as well as 10.5% annual property tax on all watercraft if it’s in the state for more than 180 days) 
  • Insurance
  • Mooring or dock fees
  • Transport trailer
  • Off-season storage
  • Life jackets and safety equipment
  • Maintenance
  • Gasoline (If you buy a sailboat, you can skip the gas; for engine-powered boats, you’ll need to consider this ongoing cost.)

With all of this in mind, a $20,000 boat won’t just cost you that amount; you’re also looking at about $6,000-8,000 a year in additional costs. And remember, just like cars, boats depreciate over time. Eventually, you will need to weigh maintenance costs versus your boat’s overall value. 

How do boat loans work?

If you’ve ever bought a car, there’s good news: buying a boat isn’t that different of an experience. A boat loan is very similar in structure to an auto loan. Both take the same information into account for a purchase: your net worth, your credit rating (shoot for upper 600s or higher), income stability, and debt-to-income ratios. Your credit union will generally require a down payment (usually between 10 and 20 percent), and you can often roll the “extras” (warranty, safety gear, etc.) into the full loan cost. 

In contrast, however, higher loan amounts can usually be stretched over a more extended period, with the average boat loan term ranging anywhere from four to 20 years. Larger boats or boats with a higher price tag will often have a lower interest rate and may include a longer loan term.

Ways to Finance

There are three common avenues for financing a boat: your financial institution (bank or credit union), dealer financing, and marine financing. Let’s explore each.

Finance with a Credit Union or Bank: Just as with a new car loan, there are a few options available to you through your financial institution. Some credit unions offer true boat loans with a fixed monthly payment over a span of time — sometimes up to 15 years. If the loan is secured, it will likely be the boat itself that serves as collateral. If the loan is unsecured (no collateral needed), you will spend more in interest and have a higher payment.

A second option that many use for a boat loan is a Home Equity Loan or HELOC (Home Equity Line of Credit). Instead of securing a boat loan with the boat serving as collateral, these two financing options use your home as the financial leverage and provide liquid funds based on the equity you have built into your home.

Dealer Financing: Similar to automotive dealerships, many boat dealers offer their own financing for watercraft. Oftentimes you can get a great rate or terms for utilizing dealer financing, but keep an eye out for added fees and unfamiliar charges. If you’re not sure about certain fees or expenses, be sure to ask for clarification.

Marine Financing: There are organizations — like the National Marine Lenders Association — that “certify” lenders specifically for boat financing. This certification is based on the premise that people who know boats can make the best boat loans. Finding one of these lenders may prove beneficial as there are a number of perks they can offer the buyer, but it’s always best to shop all of your alternatives to know if you’re getting the best deal. 

Other alternatives to boat financing

If you really want a boat but choose not to finance your boat purchase, you still have other options, including rental, joining a boat club, or saving up on your own.

Boat Rental: In many cases, a marina will offer boat rentals by the hour or by the day, allowing you to enjoy all the thrill of boat ownership with none of the long-term responsibility. There are also peer-to-peer rental groups like Boatsetter, that offer an AirBnB flair to the process. 

Boat Club: With little more than a membership fee and monthly dues, a boat club is a great way to have access to multiple types of boats anytime you want.

Save Up: It may feel like you have a long way to go, but saving for the boat you want is a sure-fire way to ensure you don’t end up underwater in a boat loan. To start, look at creating a Sinking Fund, which will allow you to set aside money each month toward this goal while continuing to pay down debt or save toward other projects at the same time. 

Are you looking to buy a boat? Or do you want to start saving for that dream yacht? Regardless of your goals, our team at Spero is here to help! We can help you in any number of ways. When you’re ready, just let one of our member service representatives at any Spero branch know! 

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