Yacht Buying | Finance Methods for Purchasing Your First Boat

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Finance Methods For Purchasing Your First Boat

by Andrew Rombach

There are more than 17 million recreational boats in use throughout the United States, meaning about one in every 10,000 households has one. For many water lovers, having a boat or sailing a yacht is a dream, but becoming one of the millions of boat owners is not always easy. Purchasing your first boat is an expensive endeavor – one that many cannot afford from savings alone.
Fortunately, there are several ways to finance a boat or yacht by extending payment over several months or years. Qualified borrowers may have access to credit through personal loans, home equity loans, or other forms of credit that can cover big-ticket items.

How to buy a yacht

How to Pay for That Boat

As a prospective boat owner, you have several financing options, including specialized boat financing, personal loans, or home equity loans or lines of credit. Each method for financing a boat purchase has advantages and drawbacks to consider before signing on.

How to buy a boat

Rely on Specialized Boat Financing

Many boat owners turn to specialized boat financing as the go-to method for paying for a boat purchase. This finance agreement with a boat manufacturer or specialized boat lender is designedspecifically for a boat purchase, including the terms, repayment schedule, and accessibility. Specialized boat financing is often available directly from a lending partner through a boat dealership, but there are some options available through online boat lenders.

With a specialized boat financing arrangement, the lender offers a lump sum for you to pay for the boat. Over time, you repay the full amount plus any interest. Specialized boat financing is relatively easy to apply for and receive, so long as you have a strong credit history, steady income, and a low debt-to-income ratio.

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Additionally, interest rates on boat loans are typically in the single digits, making it a more affordable option than unsecured loans. In fact, according to an industry report, delinquency rates on boat financing loans are lower that that of typical installment loans.

The downside of a boat financing arrangement isthat the boat itself is used as collateral for the loan. If you fail to repay per the terms of your agreement, the lender can repossessthe boat to recoup any losses. Also, a boat loan through a specialized finance company may not have many options as far as how long repayment can extend, or the total amount available for borrowing.

How to buy a yacht

Take Out a Personal Loan

A personal loan, which is just an installment loan for various purposes, is another option for boat financing. Unlike a specialized boat loan, a personal loan is offeredthrough many different sources, including banks, credit unions, and online lenders. Personal loans may also be unsecured, meaning the boat is not necessarily used as collateral to back the financing. Taking out a personal loan may require less documentation on behalf of the borrower, but there is still an application required to ensure your credit history and income are strong.

While personal loans are an option for some boat owners, they are not the right fit for everyone. Most lenders offering personal loans limit the amount available, typically no more than $35,000. This low loan amount may not cover the entire purchase price of the boat you want to buy.

Additionally, because there is no collateral involved, the interest rate for a personal loan may be higher than specialized boat financing. Personal loans also have more restrictive repayment terms that may shorten the length of repayment, making them less affordable.

Dip Into Your Home Equity

Finally, home equity may be yet another option for financing a boat purchase. Homeowners who owe less on their primary residence than the property is worth may have available equity they can tap into for big-ticketitems like a boat.

Home equity borrowing, either through a line of credit or a home equity loan may prove more cost-effective than specialized financing or a personal loan. Thisis because the home acts as collateral for the loan, so lenders are more likely to offer lower interest rates. Depending on the available equity in your home, an equity loan or line of credit may also provide for a higher loan amount than other options. Home equity loans and lines of credit also offer much longer repayment terms than some specialized financing agreements and personal loans.

The drawbacks to using home equity, in addition to the home being pledgedas collateral, are mostly focused on the cost and accessibility factors. Getting a home equity loan or line of credit often requires a home appraisal, paid for by the homeowner. Also, there may be closing costs involved in the new loan, increasing the expense associated with borrowing funds. A home equity loan or line of credit also requires a strong credit score and steady income to qualify.

How to buy a yacht

Important Considerations

Before deciding on the type of boat financing for your first boat purchase, be sure to consider the cost of the loan and the availability of the financing. Think through the total cost of boat ownership, including ongoing maintenance, insurance, and docking or storage. Boatsdepreciate in valuequickly, so taking the time to evaluate these factors before taking out a substantial boat loan can help keep your financial health on track.

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