It’s much easier to get excited about buying a boat than securing cost-effective boat finance. But whether you’re commissioning a new boat through a dealer, buying part exchange through a broker or buying a used boat through a private vendor, chances are you’re going to need a boat loan of some kind – and that means you need to understand how a boat looks to a potential lender. After all, as a mobile asset in a hostile environment with a value that tends to depreciate year on year, a boat represents a significant risk. Unlike a static, dependable and appreciating asset like a house, a boat can be sunk, run aground, stolen or relocated and that tends to make it relatively costly as the basis for a loan. So, just how hard is it to finance a boat? What kinds of boat loan options do you have? And how can you make boat finance a cheaper and more seamless part of the overall boat buying process?
A boat purchase usually requires some form of financing, so you need to know how it appears to a potential lender.
Seven Top Tips For A Better Boat Loan
1. Boats sell fast, so if you want to iron out the logistics and speed up the buying process, a personal loan or a mortgage secured on your house (rather than your boat) can give you valuable ‘cash buyer’ status.
2. If you want to maximize your budget, a personal loan or a mortgage secured on your house is again more effective because the significant financial risk attached to your boat is removed from the equation.
3. Minimizing your monthly repayments for any form of loan tends to involve three key variables – a larger deposit, a lengthier repayment plan or an end-of-term balloon payment.
4. While it can feel like a zero-stress option, allowing a professional broker or yacht management firm to oversee the finance, a bit of research and a few phone calls of your own are likely to prove very cost-effective.
5. While in some cases, a marine loan’s repayment terms can be pushed to 15 years, the balance between interest and boat depreciation can diminish cost-effectiveness and delay equity – so if you choose the specialist marine finance route, and you want to push the repayment term, make sure you do your sums.
6. Flexibility can often be very welcome further down the line – so check whether your loan allows you to pay off your boat earlier than the stated terms, without incurring any penalties.
7. With boat loans, as with boat size, do not overstretch yourself. No matter how favourable the loan terms are, the most vital consideration is the establishment of a monthly repayment plan you can afford to meet with a generous safety margin in hand.
Several firms specialize in marine finance that may be of assistance, or a mainstream high-street bank may have a marine department
What Kinds Of Boat Loans Are There?
There are now more ways to finance your boat than ever before. You could use one of the many specialist marine finance firms. You could contact the marine arm of a mainstream high-street bank. Or you could examine a standard personal loan through an entirely non-marine financing channel. But of course, wherever you look, there are some basic parameters that will always affect the scale of a loan and your eligibility to access it. In addition to the prevailing financial conditions, your credit score, your earnings and the scale of your deposit are of course key. And where a marine loan is secured on the basis of the boat itself, the age, condition and market value of the boat all come into play - as do the location, the storage method and your intended usage. Unsurprisingly then, when you make an application for a boat loan, you will often find that your loan term is shorter, your interest rate greater and your monthly repayments higher than a lender’s quoted ‘best case’ figures.
How Hard Is It To Finance A Boat?
In view of the perceived risks attached to a boat, marine finance from a dedicated marine provider is rarely the best option for the largest loan, the most favourable terms or the fastest transaction. After all, if the boat itself is being used as security, your finance provider needs to verify by means of a formal boat survey, ownership documentation and an insurance policy, that the boat is a sensible risk in order to validate your loan and release your funds. That can obviously take time, potentially disadvantageous in the eyes of a private seller when the used boat market is so buoyant and dynamic. When the loan does come through, you can usually expect to pay quite a rich premium to help cover the lender’s perfectly credible risks - and when your ownership of the boat comes to an end, and you look to recover whatever equity remains, the fact that your lender might retain a legal claim over part of the boat means it will have to be closely involved in the sales process too.
A formal boat survey, ownership documentation, and an insurance policy are necessary to validate your loan and release your funds.
How Can I Get A More Cost-Effective Boat Loan?
It might sound peculiar, but if you can divorce your boat loan from boating altogether, there are some remarkable deals to be had. For instance, if your boat purchase only requires a modest top-up, a personal bank loan for a modest sum over a relatively short period often represents outstanding value for money, compared to a marine-specific loan. And if you own a house with sufficient personal equity and your existing mortgage repayments are manageable, using your house rather than your boat as security can deliver some superb interest rates, as well as tremendous flexibility in terms of timescale, helping generate big reductions in monthly repayments. Better still, the fact that the lender is unlikely to care how you spend the money means that (in principle) you could borrow enough for the entire price of the boat, plus all associated equipment and service costs. And as an added bonus, the fact that you can finalize the loan before you’ve sourced a specific boat helps eradicate any complication by putting you in the position of a cash buyer. In the post-Covid boat buying market, where boats routinely sell within days of being listed, being able to buy fast and clean, without doubt, or proviso, puts you in a very strong position to secure the boat you want.
Related Article: How to Buy a Boat: The Boat Buyer’s Guide
