Key takeaways

• You can secure a loan from a bank, credit union, or online lender to purchase a new or used boat.

• Maintenance, storage, and insurance can add thousands of dollars in annual expenses that need to be accounted for before purchasing a boat.

• The average boat is on the water just 54 days out of the year — a consideration that should factor into the decision to purchase a boat.

Each year, Americans spend over $49 billion between boats, marine products and service, so it’s safe to say we love boating. But owning a boat is an expensive endeavor. Outside of the purchase cost, maintenance costs, insurance and other extras can set you back by several thousand more a year.

Buying a boat can be a fun investment, but there are several factors to consider before applying for a loan.

5 factors to consider before applying for a boat loan

When it comes to purchasing a boat, financing is usually the way to go. But there are a few considerations to weigh in before applying for a boat loan.

1. Your credit

Most boat loans are issued based on credit, so the higher your credit score, the higher the chances you’ll get approved for the loan. Your credit score also plays a key role in determining how much interest you’ll pay. Although some lenders may approve you for a loan with less-than-perfect credit, you’ll probably end up with a higher interest rate.

To make sure your credit is in tip-top shape, you can request a free copy of your credit report from all three major bureaus by visiting AnnualCreditReport.com. These reports give you an idea on where you stand with creditors, and whether you need to build your credit before applying for a loan.

2. Your budget

Just like with any significant investment, such as a house or a car, it’s important to ensure that your future loan payment will fit comfortably into your monthly budget. Before applying for a loan, take inventory of your debts, minimum payment dues and other financial obligations, to understand how much boat you can afford.

Also keep in mind that, depending on the lender, you may be asked to give a down payment between 10 and 30 percent of the total loan amount. If you need help crunching the numbers, try using Bankrate’s boat loan calculator. This will give you an idea of your price range and the length of the repayment term.

3. The type of loan you’ll need

Boat loans can be secured or unsecured. Secured loans are those that require an asset to serve as collateral in case you default on the loan. Unsecured loans, on the other hand, don’t require any collateral and are issued based almost entirely on credit.

If your credit needs some work, then going for a secured loan may be the better option. Secured loans tend to be easier to qualify for and offer lower interest rates than unsecured loans. However, if you default on the loan, you could lose the boat or any other asset that was used as collateral.

Unsecured loans are better suited for those with good-to-excellent credit and strong financials — or those who have a co-signer that meets these criteria, as they can secure the most favorable terms. If you fall behind on payments with an unsecured loan, the lender can’t seize any assets from you. But your credit will still be affected by the default.

4. The total cost of owning a boat

This shouldn’t come as a surprise, but the cost of the boat itself is just part of the equation. Yearly boat maintenance costs are equal to 10 percent of the total cost of the boat. So, if you have a $40,000 boat that comes down to $4,000 a year.

You’ll also have to pay insurance. Boat insurance rates are about 1.5 percent of the boat’s insured value.

Other costs to factor in include:

• Fuel.

• Dockage fees.

• Storage fees.

• Taxes.

• Registration.

5. How often you’ll use the boat

According to the U.S. Coast Guard, the average boat in the U.S. is only operated for 54 days a year.

If you’re thinking about using your boat occasionally during Spring Break or summertime, then taking on thousands of dollars worth of debt, in addition to other expenses, may not be worth it.

You may be better off renting a boat for specific occasions if you’re not planning on getting year-round use out of it. Although renting isn’t cheap either, it will save you money on insurance costs, maintenance and other fees.

Where you can get your boat loan

You can get your boat loan from community and national banks and credit unions. You can also get a boat loan from specific online lenders if you’d prefer to take the online route with your application.

There are also lenders dedicated to marine financing, often found through dealerships. Depending on where you live, you may have the option of visiting a brick-and-mortar lender.

How to qualify for a boat loan

Just like any other loan, you’ll need to meet the lender’s eligibility criteria. However, boat loans may be harder to get approved for than other types of financing options. You have to meet financial requirements, but your boat may need to meet age and condition requirements on top of that.

To get approved for most boat loans, you’ll likely need to have good-to-excellent credit, make a steady, reliable income and have a low debt-to-income (DTI) ratio to qualify. These specific factors are used to determine your creditworthiness, so pay attention to the lender’s requirements and your financial health before applying.

You may have a harder time finding financing for older boats, especially if you’re looking into secured options. If your credit isn’t in the best shape and the boat is an older model, you may need to look into getting an unsecured option with a co-signer.

Shop around for lenders before applying for a loan. Some lenders even offer prequalification, which allows you to check what you may be eligible for without impacting your credit. Comparing quotes from multiple lenders is the best way to ensure you get the most favorable terms available for your situation.