by B.J. Porter (Contributing Editor)

It’s more common at the boat show to see prices in monthly payments instead the full purchase price of the boat. From a sales perspective, this makes loads of sense. What better way to get past the sticker shock on a $100,000+ boat than to break it up into a much smaller monthly payment?

Before you buy a boat, you should know how you can pay for it. Cash always works, but like buying a car or house, it doesn’t always make the most sense. So let’s take a dive into boat finance basics and look at the options.

Boat Loans vs. Auto and Home

At their core, boat, auto and car loans are similar products. They are loans to be repaid over a fixed period with an agreed upon interest rate, secured by a tangible asset. The bank holds a lien against the property that it can take if payments are missed. Every month, you pay a fixed amount, some of which goes towards the principle (the balance you borrowed), and the rest is interest. At the end of the payment agreement, when the loan is satisfied, the bank removes the lien.

But there are differences, and these affect how you can and can not borrow for boats. Some differences include:

• Houses can’t move, and cars are tough to take out of the country. But a boat? You can sail that off into the sunset. This affects risk, some rules about the use of the boat, and what a bank will finance.
• Houses rarely depreciate, and the future value of cars is pretty predictable. Boat future values are much more variable. This may affect the rate and terms which are available.
• Auto terms are usually 2-7 years, but boat loans can run up to 20, like houses.
• Cars and homes are viewed as necessity. Boats are not, and this can affect loan approval conditions and terms.
• There may be limits on the type, age, or use of a boat you plan to buy. Banks will finance a 30-year-old house, but they will rarely finance a boat that age, even if it’s in good condition and has good value.

Boat Loan Specialists

Because of the differences in the loans, many banks dislike offering boat loans. Or they will only offer loans in a very limited range, such as only for new, small boats without large loans on them. To get a larger loan for a bigger boat, you often need to go a more specialized route.

Some large banks have a marine finance division that handles larger loans, and if you can get to the right people, you can get the loan you want. It’s important to find the marine specialist, and to choose a bank that knows boat loans if your deal is larger or more complex.

Banks vs. Loan Brokers

There are many “Marine Loan Specialists” out there, you’ll find half a dozen at every boat show. These are not banks, but they are loan brokers that may represent banks. And they’re often one of your best options to secure financing for your yacht purchase.

A marine lending specialist knows which banks finance boats, what type of deals they like, and what may be your best shot at an approved loan for your unique deal. There’s usually no cost to you for finding loans, though there may be costs and charges for the closing as there is some paperwork.

You can find the banks yourself and approach them, but a marine loan specialist will be much more efficient at finding your financing.

Loans for New Boats

New boat loans are the easiest to get, and like a car dealer, a boat dealer often has a partnership with a finance company that can sort the loan quickly and easily. If you have the credit and the income to support the loan and you qualify, there are very few complications with financing a new boat.

It may still be beneficial to shop for a loan separately from the dealer. At a minimum, you can compare terms of the loans. But coming in with a pre-approved loan also gives you some negotiating leverage since you don’t need dealer arranged financing.

Buying a Used Boat

Loans on used boats can be trickier. Newer used boats are less of a problem, though rates may be higher you shouldn’t have trouble financing something less than ten years old. It’s when you get to older boats, and older smaller boats, that financing can be more of a challenge.

As an alternative to a boat loan for an older, smaller boat, some buyers have used unsecured loans or even home equity lines of credit. There may be tax implications using home equity loans to buy a boat, so do your homework.

What About Leasing?

“Leasing” a boat like you can lease a car is normally not an option. A car lease is the buyer (or “lessee”) financing the drop in value of the car over time, while not actually taking ownership of the car. The lease company always owns the car, though the lessee maintains it and limit miles to within the contract.

But that model assumes both the reliable future values of cars and that the lease company wants the vehicle back. They sell millions of cars every year, and there is really solid data for resale values and markets. So the risk of leasing is low. But boat values are far more variable, and this type of deal structure is far too risky for most finance companies.

So you may hear the term “leasing” a boat, but that usually refers to a long-term rental or charter, rather than the lease with buyout option you might get on a car.

Requirements for a Loan

For any bank to finance a boat, they will want several key things. Some you have control over, some you will not.

• Good credit and income to cover the payments. It’s a loan, like any other. But on a discretionary purchase, the standards may be higher.
• A survey with an appraisal on a used boat. Some banks may require this for a new purchase, and banks will not lend more money than the boat is appraised for.
• Hull insurance. Any lien holder wants their collateral covered against loss. You must have insurance bound before the closing and provide proof.

A note on insurance – if you are buying a much larger boat than you’ve owned before, you may struggle to get coverage. So start looking immediately, especially if you are planning long trips and offshore sailing.

And don’t forget about…

The most important thing to remember when financing is that buying the boat is only the first expense. You will need to maintain it, fuel it, fix it, and berth it some place. So budget for the entire boat ownership experience, not just the biggest monthly payment you can swing. A boat is no fun if you can’t afford to go out and use it.