Buying a boat can be exciting. For many, buying a used boat is more affordable than buying a used one. Yet financing a used boat brings with it challenges beyond those of financing new boats. The age of the boat that can be financed depends upon the value of the boat, the source of financing and type of loan.
Loans for boats can be obtained through several sources:
- the boat dealer
- marine specialty lenders.
Most of these loans work similarly to car loans. The lender holds an interest in the boat as collateral. If you make all your payments, the boat is yours free and clear at the end of the loan term. If you default on the loan, the lender can repossess the boat and sell it to cover your loan. For that reason, lenders want to be sure that your boat will be worth at least as much as you owe on it throughout the life of the loan. This need on the part of lenders is a key factor in how old of a boat they will finance.
The typical age of boat for loans
Many lenders will not lend money for boats older than 15 years, according to the Mortgage Report. Some will lend for boats manufactured as long ago as the 1980s. Just as with cars, a buyer is more likely to find financing for an older high-quality boat than a mid-range or lower-end older boat, according to AllAtSea.com.
Regardless, interest rates will be higher for older boats. A premium is charged for financing boats older than 20 years. Lenders typically also will want the boat to be appraised and some may even require that list of comparable boats be presented to help them assess value, according to Boats.com. They also will require that the title be researched to be sure no other liens exist on the boat.
Alternative ways to finance your boat
If you need to finance an older boat and these options do not work, you also may consider obtaining a personal loan or using money available through a home equity loan or line of credit. The advantage of these types of loans is that because the boat is not used as collateral, its age will not be relevant to lenders.
Using these types of loans may enable you to borrow to buy a boat that is older than lenders will approve otherwise. Personal loans, because they are unsecured, require excellent credit and are more likely to be obtained for less expensive boats. They also typically will carry a higher interest rate than a loan secured with collateral. They also will need to be repaid in a relatively short period of time. Home equity loans and lines of credit use the equity in your home (the value of your home minus what you still owe) to buy the boat. Because this loan is secured with your home as collateral, the interest rate will likely be lower than many other financing options.
Depending on your tax situation, you may also be able to deduct the interest you pay. If you default on the loan, however, you will likely lose your home. These loans will typically require an appraisal of your home and may have additional fees, which some lenders will waive. Home equity loans are fairly straightforward; you borrow a certain amount and begin repaying it over time.
Home equity lines of credit generally come with a draw period, during which you may need to only pay the interest, followed by a period when you must also pay on the principal. You should be sure that you will be able to pay the full payment, including the principal, and not just the interest.
Can you get a loan for a used boat?
Just because loans are available for financing a used boat doesn't mean everyone will be able to obtain one. For almost any type of boat loan, creditworthiness will be a factor. This means a high FICA score.
Scores in the 700s or higher are ideal; in some cases, loans may be approved for those with scores in high 600s, but all other aspects of the borrower's profile must be very strong. Lenders providing secured boat loans would hope to see a stable employment history and a strong history of successfully handling loans of similar size, as well as liquid assets sufficient to cover 12 to 16 months of payments, according to Boats.com.
Banks, in particular, will give the best consideration to those who have almost twice as many assets as debts because they see these individuals as potential customers for other services, says Boats.com. These loans also typically require a down payment of 10 percent to 25 percent of the boat's value depending upon the lender and your credit profile.
Personal loans typically require higher credit scores than secured loans because they represent more risk to the lender. Loans using your home as security require good credit and a stable history as well as a sufficient amount of equity in the home to more than offset the amount of the loan.
How long can you finance a used boat?
That depends upon the amount and type of loan, as well as other factors. In most cases, the loan term ranges from four to 20 years, with higher loan amounts being stretched over a longer period of time. Generally speaking, the longer the finance term, the higher the interest rate will be, which means that you will pay more for the boat by stretching the payments out longer. If you finance the boat with a personal, unsecured loan, you may need to repay the loan in full within five years or less. Of course, if you use your home's equity to finance the boat, the term would vary.
A home equity loan might have a term of between five and 30 years. A HELOC might have a draw period of 10 years, with up to 20 to repay. In all types of loans, check to see if there is a prepayment penalty, or an added fee if you pay the loan off earlier than expected. The best loans will have no such penalty, meaning that you can choose to pay your boat off sooner and save money by paying interest over a shorter period of time.
Can you finance a boat for 20 years?
Possibly yes. If the boat is expensive, you may be able to obtain a 20-year term for a secured loan with your boat as collateral. Even if the boat is less expensive, you may be able to finance it over a 20-year period through either a home equity loan or home equity line of credit.