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How to Get a Boat Loan

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Do you like to fish, water ski or just putter around in a pontoon boat? If you’re looking to buy a new boat, chances are likely that you need a loan for at least part of that purchase. After all, a boat is as big a purchase as a car — if not bigger.

But before you go and apply for a loan at the dealer, you need to take time to understand your boat loan options.

What Are Your options?

You actually have several options for getting a boat loan. First, we’ll look at the types of loans you can get, and then we’ll check out the places to get these loans.

The two most common options for getting a boat loan are a typical collateral loan and a home equity boat loan. But another option that may be available, if you have excellent credit, is an unsecured personal loan. Each option has its pros and cons:

Collateral loan: This is similar to your traditional auto loan. You use the money to buy a boat, and the boat itself is collateral. So if you default on the loan, the lender has the right to take your boat and sell it in order to recoup losses.

Rates on this type of loan will depend on your credit score, and you’ll have a down payment of 10%-25% of the boat’s purchase price.

Home equity loan: If you have significant equity in your home, you can take out a home equity loan or line of credit to use for basically anything. Payments on home equity loans are usually tax-deductible, and these loans allow you to take advantage of today’s low home loan interest rates.

To get a home equity loan, though, you may need to pay for an appraisal, and you’ll have to pay closing costs. Also, with this type of loan, your home becomes the collateral. This can be dangerous because if you default, the lender can foreclose on your home.

Unsecured personal loan: If you have great credit, you probably have access to a personal loan, which you can use in just about any way you want. An unsecured personal loan isn’t backed by collateral. If you miss payments, your credit score will tank, but a lender can’t directly come after your boat or home.

Because this type of loan has no collateral, it often comes with a higher interest rate. That’s something you’ll want to keep in mind as you’re shopping around for a boat loan.

Where to Get a Loan

As with other types of loans, you can get a boat loan from many different places, including the following.

Dealers: Just like auto dealers, boat dealers often offer in-house financing. Sometimes this is a good deal, especially if you’re buying new. Dealer-based financing may give you access to manufacturer deals that will save you money. But don’t assume that dealer financing is your best option. Shop around before you decide.

Banks and credit unions: Banks and credit unions are another good place to look for a boat loan, unsecured personal loan, or home equity loan/line of credit. These lenders may offer better rates than dealers, and they’ll likely give you the option of buying a boat directly from a seller, which could save you some serious cash.

P2P lenders: Peer-to-peer lenders like Prosper and Lending Club are becoming more and more popular. These lenders offer unsecured personal loans that you could use to buy a boat. You may find you get a better rate from a P2P lender than you will through a bank, especially if you have excellent credit. Again, a P2P loan allows you to buy from either a dealer or a seller.

Steps for Getting a Boat Loan

Getting a boat loan is similar to getting an auto loan. Here’s what you need to know about the process.

1. Check your credit score. Before you apply for any type of loan, you should always check your credit score. Pull your most recent FICO score from at least one — preferably all three — of the major credit bureaus — Experian, Equifax and TransUnion. (You can also check two of your credit scores for free through Credit.com.)

Check your credit reports for any mistakes, and have them corrected as soon as possible. Even minor issues can stall the loan process, or sink your credit score.

If your score is lower than what the lenders require to give you a good rate (it can vary by lender; do your research before you apply) take a few months to bring it up before applying for a boat loan. A higher score will give you a better chance of approval, and will save you money by landing you a lower interest rate.

(Over the life of a 3-5+ year loan, even a 1% APR reduction can make a huge impact!)

2. Start shopping around. If you’re unfamiliar with the boat market, take time to shop around a bit. Get a feel for prices in your area so that you know how much money you need to ask for.

3. Know how much you can afford. If you make $30,000 a year, you shouldn’t go buy a $100,000 boat – even if someone will loan you that much money. Because a boat is purely for pleasure, you certainly don’t want to get in over your head. So shop for a boat with a reasonable total price and monthly payment, based on your income.

4. Shop for a loan. Don’t just go with the first lender who approves you for a boat loan. Instead, shop with at least three lenders. You may want to get a variety — a national bank, a P2P lending service and a boat dealer, for instance. Compare the loans’ terms and interest rates before choosing the loan that works best for you. Keep in mind, though, that each time you apply for credit, you’ll get a ding on your credit score.

5. Go buy a boat. Once you’ve settled on the best loan for your needs, you can buy your boat. Just be sure you stick to your affordability limits, and that you pay a decent down payment on your new (or new-to-you) pleasure boat.

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