Spending time on a boat and getting out on the water whenever you like is a special kind of freedom. It’s not like having “sticks and bricks” where you’re forever stuck in one place. It doesn’t matter whether you own a pontoon boat or a faster speedboat, it’s a substantial investment but one that you can enjoy and possibly be a liveaboard with a large enough boat to save on rent. Then if you kayak as well, you can paddle around in the local waters without having to pull up anchor just to play on the water.
The trouble comes into this perfect scenario when you consider the cost of boating. While its upkeep, fuel, and boat insurance do cost a fair amount, the price to acquire a boat is the real issue. You want one that’s large enough to be comfortable, especially if you’ll be entertaining guests or living abroad full-time. Boats are especially great for holiday activities and traveling. You also want a boat that’s going to be a lasting investment and basically not sink while you’re out on the water. When your budget won’t stretch to the type and size of boat that you find appropriate, but you still would like to cruise around in a new boat, then it’s worth considering taking out a loan to cover the difference.
In this article, we discuss what types of loans are possible to afford the right boat for you.
What Loan is Useable for a Boat?
When looking to get a loan to purchase a boat, there are a few options. However, if you have bad credit, then the choices are more restrictive.
At that point, you should consider either a personal loan, collateral loan (at a fixed rate) or a home equity loan.
Home Equity Loan
A home equity loan is one that is borrowed against your home. There must be sufficient equity in the home (the difference between its current market value and any outstanding mortgages or liens on it) to borrow against the equity value.
With a home equity loan, it’s against an asset that’s yours already, so it’s considered less risky by the lender and rates are reasonable. However, if you cannot make all the payments on time, there’s a risk that the lender will move to repossess the real estate. A credit check will be run before this type of loan is approved too.
Collateral (Fixed-rate) Loan
A collateral loan at a fixed-rate is one where the boat is used as collateral. This is useful for people with bad credit because it is asset-backed, so the lender, usually a credit union or bank, is less concerned about repayment. They will do a credit check when the loan is applied for and the boat can be repossessed and sold off should the loan not be paid on time.
Personal Bad Credit Loan
A personal bad credit loan is likely the best option for people who have bad enough credit and get rejected when applying for other types of loans. Where security isn’t sufficient to get the loan approved, a personal bad credit loan is another way to go. Some lenders do a full credit check whereas others do a soft one that doesn’t hurt future loan applications.
There’s also the option of going the boat loan no credit check route. This is a boat funding option where it’s confirmed that no credit check will be run. This avoids impacting a bad credit rating any further.
With all personal bad credit loans, the loan isn’t specific for one purpose. The person taking out the loan can spend the money on a boat, home improvements, to buy an RV, or something else entirely. The flexibility is part of its attraction to borrowers.
What Can You Do If Your Credit is Bad?
Let’s talk candidly about a situation where your credit is bad and what the reality is likely to be when wanting to get some finance to buy a boat.
Trying to work with a boat lender is difficult. While they will know their boats and what’s a realistic value for either a new or used one, they may not deal with borrowers who have poor credit. This it can feel like you’re well and truly stuck.
The reality though is that there are many loan types. There are some loans where the borrower is either less concerned or completely not bothered about what the loan will be used for. So, even when taking out a payday loan, it’s completely up to you how you spend it or invest the money.
It’s also a fair point that some lenders won’t offer a loan if they know you’re planning on using the money for a boat. If they’ve personally never owned a boat before, it can seem like an extravagant purchase even if you plan to buy it to live on the water.
What Other Choices Do You Have?
Look for lenders that are willing to lend enough money and aren’t restrictive about what you are allowed to purchase with it. With personal loans, the lender is focused on your ability to repay with monthly payments and rarely on what’s on your shopping list.
A co-signer might make the difference between getting approved for a loan or not. Bear in mind that they will be responsible for full repayment of the loan if you’re unable to do so. However, some friends or family members might enjoy occasional use of your boat in exchange for helping you out.
Also, if you’re able to save up to put a better down payment on a boat purchase, this reduces both how much you’re needing to borrow and how leveraged the boat will be. Even if the loan is unsecured as a personal loan is, it’s still good peace of mind.
When you can provide proof of income from a long-standing job with pay-rises and promotions over time, this can also make the difference between getting approved or declined. Lenders are in the business of making money by providing loans. They’re only trying to protect their best interests and avoid losing their capital while trying to make a profit through the interest charged. When you understand their position, try to work with them to provide what they require.
