How do Boat Loans Work?

Boat Loans  
Boat Loans - Smarter Loans

Say Ahoy to Boat Loans


Most people who love the water dream of owning a boat that they can use whenever they want. Boat loans provide the funds needed to purchase a new or used boat for water activities like fishing, water skiing, sailing, and sometimes, living. Boats are a big expense, no matter what size the vessel. But like any financing, boat loans can be achieved with information and advance planning.


Boat loans are primarily considered as recreational financing, unlike business loans or home mortgages. There are several options available from which borrowers can choose for this type of specialized purchase. This article contains the following information about boat loans:


  1. Types of financing available
  2. Where to apply for boat loans
  3. The application process
  4. Questions to ask about financing a boat
  5. Bad credit boat loans


Types of Financing Available


In order to make the best decision, potential boat owners should research a variety of ways to get all or part of the money needed to buy a boat. Some boat lovers have saved money towards the purchase of a boat, others need to have the boat fully financed. Factors to take into consideration are assets, credit scores, and how much to borrow. Ways to finance a boat include:


  • A collateral loan is an option that is used for other secured credit purchases, like auto loans. For boat loans, the boat is used as collateral for the loan. If the buyer defaults on payment, it gives the lender the right to repossess the boat (as well as keep the payments the borrower has made) and sell it in order to recover their loss from the loan not being paid in full.
  • An unsecured personal loan is very well suited for people with good credit. Because the boat is not used for collateral, the lender cannot take the boat if payments are missed. The lender can, however, sue the borrower in court to collect the money as well as ruin their credit.
  • A homeowner who wants to buy a boat can take out a home equity loan. This option for boat loans should be used with caution, since non-payment can result in foreclosure on the home. Most lenders require an appraisal of the home and closing costs for home equity loans used for any purpose.
  • Loans from friends and family can also be used to buy a boat. Some families set up contracts for boat loans so that each member that puts in money owns a portion of the equity in the boat.
  • From online lenders that offer recreational vehicles.
  • In some cases, “for sale by owner” contracts are made between boat buyers and boat owners.
  • Use our boat loan calculator to play check the rates you’d pay for different terms.


Once the borrower has window shopped for the boat they want, and understand the options for financing, it is time to find just the right lender.


Where to Apply for Boat Loans


There are limitless lenders that offer loans to boat lovers. Some borrowers apply for loans at the bank where they currently do business. Sometimes, they get discounts or other perks for a history of a good financial relationship. Credit unions are another source for current customers to look for boat loans.


Several marina lender associations have relationships with financial institutions to help customers find funding to buy boats. Financial service companies provide access to various finance programs available to borrowers. These companies advertise in boating publications and other places of interest to boaters.


The Application Process


Depending on the lender, applications for boat loans can be in written form, fax, or over the phone. The larger the loan, the more documentation is required. Borrowers can expect to provide at least two years of tax returns and a personal financial statement. The borrower has to supply the following information about the boat on the application:


  • The cost of the boat
  • The amount of sales tax that must be paid at the time of purchase
  • Price of equipment upgrades or accessories that purchaser is considering
  • How much the title, registration, and other documentation will cost


Just like any other credit, such as equipment loans and auto loans, the borrower should be prepared to give permission to the lender to perform a credit check, as well as verify employment and residence.


Questions to Ask About Buying a Boat


Borrowers should have a list of valid questions ready to ask the lender. This will help the borrower to make a more informed decision about which lender to choose. These questions may include:


  • Does the lender offer a fixed or adjustable interest rate?
  • How much of a down payment does the lender require?
  • What is the timeframe for repayment?
  • Will the lender finance any type of boat (sailboat, yacht, houseboat, etc.)?
  • Is there a penalty for early repayment?
  • Does the lender require a minimum finance amount?


Before approaching the lender, the borrower should write down any questions that are specific to their situation. For instance, the borrower of a used needs to know if the lender finances used boats as well as new, or whether the lender offers bad credit boat loans.


Bad Credit Boat Loans


Some lenders specialize in securing boat loans for people with bad credit. Like any subprime (low credit score) loan, borrowers can expect to pay higher interest rates and fees. Other requirements may include:


  • An age requirement of the boat (often no older than 10 years)
  • A minimum down payment
  • A minimum debt to income requirement
  • A maximum repayment term (some lenders max out repayment to 8 years)
  • No unpaid collections on the credit report
  • All credit accounts current


Borrowers with bad credit should prepare to provide detailed verifiable documentation such as income and tax returns. Paying off as many accounts as possible, and bringing any late accounts current, will also help result in an approval.


The myth that only rich people can own a boat has been disproven for decades. People from all over the world, in a wide range of incomes, have turned their love for boating into a reality. The key to their success is a well charted plan that includes the size boat they need, sensible financing, accurate information, and determination.

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Smarter Loans Staff

The Smarter Loans Staff is made up of writers, researchers, journalists, business leaders and industry experts who carefully research, analyze and produce Canada's highest quality content when it comes to money matters, on behalf of Smarter Loans. While we cannot possibly name every person involved in the process, we collectively credit them as Smarter Loans Writing Staff. Our work has been featured in the Toronto Star, National Post and many other publications. Today, Smarter Loans is recognized in Canada as the go-to destination for financial education, and was named the "GPS of Fintech Lending" by the Toronto Star in 2019.