Guide to Boat Financing
Unless we are talking about a kayak, boat ownership is not exactly known for its affordability. If you dream of owning a superyacht, or even just a modest sailboat or pontoon boat, how much is it going to cost you–and how expensive of a boat can you afford?
You will probably need to get a boat loan unless you are planning on paying the full price of a boat out of pocket. Financing a boat is a process similar to getting any other type of loan, and can be broken down by answering a few simple questions.
How Expensive of a Boat Can I Afford?
Unless you plan on living in a houseboat year-round, a boat is a luxury or leisure item, not a necessity. As such, you need to set realistic expectations of how much you can afford to pay month-to-month, and how much you have to set as a downpayment. Considering that you’ll also have to account for moorage, maintenance, and fuel costs, definitely give yourself some padding in your budget.
How Big of a Down Payment Do I Need For a Boat?
Unlike a home, the percentage you can expect to be asked to put down largely depends not only on your creditworthiness but on the cost of the boat itself.
If you are purchasing a boat for under $150,000, you will probably need to make a 10% down payment. If you’re looking at a fancy boat that costs up to $250,000, you will need to put down 15%. A yacht or a houseboat that costs up to $500,000? Expect to put down 20%.
Of course, if you are deemed a risky investment by a financial agency, you’ll need to put more money down (and a higher percentage) than you would need to otherwise.
How Much Can I Borrow For a Boat?
It depends on your debt-to-income ratio, which you can find by dividing the total of all of your monthly debt payments (mortgage, school loans, credit cards, etc.) divided by your monthly pre-tax income. For example, if you have a $250 monthly student loan payment, an $800 monthly mortgage payment, and make $4,000 a month pre-tax, your debt-to-income ratio is 26.25%.
If your debt-to-income ratio is above 40%, then you probably won’t qualify for a boat loan and should focus on paying down your current bills before trying to finance such a significant purchase.
Ideally, even with the boat, you should try and keep your debt-to-income ratio at or below 43%. In the above scenario, that means you could afford about $670 a month in boat loan payments.
Do I Need Good Credit? What Will Be My Interest Rate?
Applying for a boat loan with bad credit is a major red flag: why are you trying to make a big luxury purchase, a lender would argue to herself, when you can’t even handle your finances? Also, if you do find a lender, it’s still not a great idea.
Assuming you do have good credit, you can probably expect to find an interest rate around 3.4-8% for a 12 to 20-year boat loan.
Where Can I Find a Boat Loan?
Your best bet is checking with your financial institution. Not only will it be a more natural process in terms of hunting, but you might save yourself some unnecessary paperwork, too. If your current bank or credit union doesn’t offer boat loans, ask other reputable boat owners you know rather than merely searching yourself, and at the very least choose a reputable financial institution. Boat sellers may also offer loans, though in some instances the terms may be less advantageous than those you’d receive at a bank.
How And When Should I Look For a Boat Loan?
You should look for a boat loan after you figure out how expensive of a boat you can afford and before you look for a boat. Getting pre-approved for a loan will help ensure you realistically only shop for boats in your price range. Just remember that the amount you’re approved for is a ceiling, not a floor–if you find an excellent boat for less than the loan amount, definitely go that route instead.
26 United States Code 163. "Interest," Accessed Oct. 7, 2019.
IBISWorld. "Industry Report 44122c Boat Dealership and Repair in the US," Page 4. Accessed Oct. 7, 2019.
National Marine Lenders Association. "2017 Annual Report Executive Summary," Page 8. Accessed Oct. 7, 2019.
The BoatU.S. "Boat Buyers Toolbox," Page 10. Accessed Oct. 7, 2019.
Consumer Financial Protection Bureau. "What Is a Debt-to-Income Ratio? Why Is the 43% Debt-to-Income Ratio Important?" Accessed Oct. 7, 2019.
National Marine Lenders Association. "Things to Consider Before You Shop for a Boat," Page 2. Accessed Oct. 7, 2019.
Office of Comptroller of the Currency. "Installment Lending," Page 2. Accessed Oct. 7, 2019.
National Marine Lenders Association. "Boat Loan Basics," Accessed Oct. 7, 2019.
Consumer Financial Protection Bureau. "Get a Prequalification or Preapproval Letter," Accessed Oct. 7, 2019.