Boating might seem expensive, but about 75% of boat owners are middle class. How do they do it? The secret is boat financing.
Although boats are expensive, they’re affordable with the right type of financing. Many boat loans have a 20 year payback period. This means that you only need to make small monthly loans to get the boat of your dreams.
However, you should know that financing a boat can be a bit complicated. There are many factors and requirements to consider, much like receiving a mortgage. But with the right know-how, you can navigate these treacherous waters with ease.
Here are seven boat financing tips to make a wise and manageable boat purchase.
1. Know Your Finances
A boat of any type is a substantial purchase. Practice caution before heading to your local boat dealer. The best way to finance a boat is to first know your finances.
Start with a basic credit check. You’re legally obligated to a free credit report once a year. Dispute any errors in the report to give your credit score a boost.
Even a small increase in your credit score can shave thousands of dollars of interest off your boat loan. Now that your credit is ready for another loan, take some time to figure out an affordable monthly payment.
It’s a wise idea to leave some wiggle-room in the budget. Try to aim for the cost to consume no more than half your expendable income.
Don’t forget that in addition to your monthly installments you’ll also have to pay boat insurance and maintenance fees. With this work done upfront, you’ll know the type of loan and boat that works for your budget.
2. Decide on a Downpayment
A downpayment is a typical requirement for any boat loan. You can expect to pay an average of about 15 to 20 percent.
You might also opt to provide a much larger downpayment. Doing so comes with several perks, such as smaller monthly payments. Some boat lenders have special incentives for a downpayment above 20 percent and will reduce the interest rate.
3. Choose the Right Loan
Financing a boat is all about your choice of loan. It can be a tad overwhelming since you have so many options. In general, many buyers tend to go towards loans that require collateral because they come with lower interest.
Do you have a significant amount of equity in your current home? A home equity loan is a legitimate option. If you go this route, be sure you never miss a monthly payment or else you may lose your home.
Although unsecured personal loans have higher interest rates, it’s a safer option. You don’t have to worry about losing an asset since there’s no collateral.
You can also get special loans directly from the dealer. Oftentimes these come with unique perks. However, it’s in your best interest to scout out other options beforehand so you know you’re getting a fair deal.
4. Boat Financing: Pick Specialized Lenders
No matter what kind of boat you’re buying, it’s time to listen up. Boat finance is complicated. That’s why some lenders specialize in boat financing.
Lenders with boat financing knowledge are members of the National Marine Lenders Association. Their expertise is invaluable, especially if you’ve never financed a boat before.
They know how to finance a boat and can lead you through the process. Plus, they’ll help you take advantage of special tax incentives that less experienced lenders might miss.
5. Get Pre-Approved
Just like a mortgage loan, you’ll need to be pre-approved before visiting the boat dealer. That’s because they’ll want to know that you can afford the purchase. Plus, it helps you out by setting a firm budget.
Pre-approval requires a bit of paperwork, such as proof of income. Once you finish working with your lender, you’ll have to wait about a week’s time for them to get back to you.
Make a wise financial decision and don’t spend the entirety of your pre-approval. You’ll want some additional funds in place for new fishing and boating equipment. For example, retrofitting your new boat with marine batteries can keep you on the water longer.
6. Inspect the Boat
If this is your first time financing a boat, you might not know that it needs an inspection. Like a home loan, your lender wants an inspection to ensure you aren’t buying an overpriced lemon.
To get an inspection, you’ll need to contact someone known as a marine surveyor. This is also your opportunity to talk with the seller to discuss any concerns with the boat’s condition. If you’re buying a used boat, you should ask about the boat’s previous history.
7. Don’t Forget Boat Insurance
While boat insurance is not necessary in most states, virtually all lenders require it. In case anything happens to the boat, they’ll want to know they can get their money back. Basically, it’s just like an auto loan.
Insurance is an important consideration for financing a boat. You’ll want to be sure your budget has enough room to include the cost of your insurance coverage. Even though it’s another monthly payment you’ll have to worry about, the peace of mind is often worth the cost alone.
Yes, You Can Afford a Boat
Boat financing makes boat ownership a possibility for anyone. The secret is to establish good credit beforehand. Mixed with a wise lender and a long payback period, a boat loan is a sensible burden that won’t break the bank.
Remember to start your search with a credit check and financial audit, so you know what’s right for your budget.
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