As one of the thousands visiting the Miami Boat Show this Feb. 11-15, you may come across the recreational boat you’ve always dreamed about. Your financing choices will likely come down to these four: a credit union or bank loan, dealer/marine-specialist financing, a home-equity–based loan or line of credit, or a personal loan. Before you sign, know the pluses and minuses of each.
Recreational loan from a financial institution
A boat or recreational loan from a financial institution or a marine lender will have a lower rate than the other three options. Tropical Financial Credit Union offers a highly competitive fixed rate. Some institutions allow you to borrow for up to 20 years for larger loan amounts. Stretching the loan length can make the monthly payment more affordable.
However, the longer the term, the more you pay in interest. Find a balance between what fits your monthly budget and the carrying cost. When speaking with a credit union or bank loan officer, ask for an amortization schedule and details on the minimum loan amount and the down payment.
Dealer or marine-broker financing
Buying and financing at the boat show has a strong appeal. The paperwork is handled in the same place, sometimes with same-day approval. Marine lenders may also offer longer terms and tailored programs that reduce upfront cash requirements.
Convenience can come at a cost. Dealers and brokers often set interest rates above those of financial institutions. You could find that add-ons like warranties or guaranteed asset protection, or GAP, insurance coverage are bundled into the loan, adding thousands of dollars to the total interest cost. That’s usually not the case with boat loans and home equity borrowing at financial institutions.
Home equity loan or HELOC
A home equity loan or line of credit (HELOC) to buy your boat can also save you money because the interest rate will be much lower than on an unsecured personal loan. Tropical Financial Credit Union offers terms up to 20 years and a line of credit set below the prime rate. There can be tax benefits if the boat qualifies as a second home under IRS rules. Consult a tax professional about whether you are eligible for a deduction.
There are downsides: Your house serves as collateral for the loan. Should you default, you could face foreclosure. Second, the loan or credit line will take longer to approve than a boat loan. Finally, you will pay for an appraisal and likely incur closing costs.
Unsecured personal loan
Some financial institutions and online lenders offer unsecured personal loans for boat purchases. Why take this route? With no lien, neither your vessel nor your home is at risk. The application is quickly processed, making loan approval as fast and easy as dealer financing.
The tradeoffs: a higher borrowing rate and a shorter term than that on specialized marine financing. The resulting higher monthly payment could put pressure on your personal finances. And your creditworthiness will determine how much you can borrow and the rate you’ll pay.
What’s the best approach to financing a new boat?
Get preapproval from a financial institution and compare the terms with those from dealers and home-equity lenders. Use the figures to calculate the monthly payment and total interest paid over the life of the loan. With complete information in hand, you will sail smoothly through the boat show exhibits.