How To Finance A Boat

A boat-large or small, with engines or sails-can be a great place to relax after a hard week in the office. Learn how to finance your own dream yacht.

It's not only Popeye the Sailor Man who dreams of cruising on the high seas. People from all financial backgrounds share the same goals. In the past, potential seafarers could tap into their home's equity to finance the purchase of a small or large seafaring vessel. But now that the home equity loan market is drying up, they must turn to other means to finance their watercraft.

Bank on your home

It used to be a simple decision: take out a second mortgage or do a cash-out refinance of your existing mortgage loan. Those options may still be on the table if your credit history is excellent. If you can get a loan backed by home equity, go for it. These loans often have the lowest interest rates, the longest repayment periods, and generally excellent terms.

Specialized financing

Most people need to look elsewhere. It's not that hard for a smallish watercraft, like a Sea-Doo, or a used 22-foot powerboat, to go for five or six thousand dollars. Many banks are still happy to give you a simple term loan for reasonable amounts like that, or you might be able to just pay cash.

More substantial vessels may need specialized financing. Boat loans, like car loans, are secured against the vehicle bought with the funds. You can find them at your local bank, online lenders like Boat US, or through the boat dealer itself.

Boat loans tend to have higher interest rates than a typical car loan or second mortgage-but the larger the loan, the lower the rate. Some lenders also give multi-boat discounts.

Necessary preparation

Like any major purchase, you can make your boat-buying experience a bit easier with some preparation.

If you're looking at a used vessel, get a professional survey done before signing the closing papers. In fact, most banks would require a clean survey before approving your boat loan. A survey is the equivalent of a home inspection, done by a licensed professional. It will cost between $10 and $20 per foot of length, depending on the type of boat-and it's worth every penny. Approximately 12 percent of all boat damage comes from improper maintenance, which can be hard for an untrained eye to detect.

Whether you're going new or used, it's a good idea to pre-qualify for the loan before shopping. That way, you'll know what you can afford, and the seller will know that you're a serious buyer. Your negotiations will be faster and smoother.

It's relatively easy to finance even a large and expensive watercraft, even in these days of nervous lenders and waning home equity taps. As a result, there isn't much standing between you and hours of fun in the ocean sun, on a catamaran, yacht, or dinghy of your own.