This is one of the most common questions asked when it comes to boat financing. The truthful answer? It depends! However, by comparing multiple lender options…it can become clear how long of a loan you will be able to obtain. Let’s take a look at how long can you get a boat loan for below.
Average Length of Boat Loans
While you can technically obtain a boat loan anywhere from 12 months to 20+ years depending on the lender…the average boat loan is between 2-15 years. Boat loans, unlike home loans, are typically going to be less than $100,000 which means the payoff period will be shorter than say a 30 year mortgage. However, you can still get a great rate below 4% with great credit and can hit the water sooner than you thought possible!
The rule of thumb when obtaining a boat loan is the more money you borrow, and the quicker you can pay it off, the better your rate will be. For example on the low end, if you borrow $10,000 on a 5 year loan you will be paying a much higher interest rate than borrowing $100,000 on a two year loan. Why? It basically breaks down to your lender maximizing cash flow while also minimizing risk. In order to obtain a $100k loan, the bank knows your credit and ability to pay it back is higher than borrowing $5000 over two years.
Why Choose A Shorter Loan?
You may be asking while most boat lenders do not offer larger loan periods the same way mortgages are offered. Well it comes down the amount they can make back and risk. As mentioned earlier, banks will offer the best rates for a high loan amount at a short rate…but what is the underlying cause?
Boats are known to be a quickly depreciating asset and the last thing a bank would want is to be holding a boat that has already underwater within a year or two after purchase, much less 30 years! New boats can depreciate as much as 20% within the first year when compared to initial out-the-door dealer purchase price. New options, dealer fees, and the first year of depreciation account for this drop and it is one reason lender prefer to stick to shorter terms.
So how do you combat this?
By making a large down payment! This may sound obvious but this is the surefire way to improve your chances of getting your money back when the time comes to sell. It can also improve your loan approval chances in some case because the bank can see that you are capable of paying back the loan.
Believe it or not…the day will come when you want to resale that brand new, or used, vessel and having a free and clear title will make the process much easier. If you ever have every browsed the used boat market, you will find that seller’s with “clear titles” use it as selling point. Why? Freeing up a loan can take time and most boat buyers want to hurry and get on the water.
What does this mean for your loan?
Here at Boat Financing Guide we recommend a 7 year loan or shorter on most any boat under $100,000. This will ensure that you will not be underwater when it comes time to sale, you will still have a very reasonable rate, and with the average ownership of a boat being 7-10 years…you will have free and clear titles when it comes to time to sale.
Peace of Mind
Longer loans mean longer payoff periods, accrued interest, and bills. Why hold off on paying for a boat if you do not have to? With a strong market and great rates, you will thank yourself for not having monthly payments if the market were to ever take a turn. Owning a boat outright is one of the most enjoyable leisures in the world so the shorter the loan period, the quicker you can own your vessel.