Dreaming of long days spent fishing, sunbathing, and generally enjoying the magic of the wide-open water?

people jumping off a boat

Boat ownership could be the key to unlocking your seafaring dreams. But for most of us, slapping down tens — or possibly hundreds — of thousands of dollars on the vessel of our dreams is simply not in the cards.

Fortunately, financing can help you get your hands on the boat of your dreams without having to wait until you can afford it outright. But how do you get a boat loan, and who offers them? What kind of boat loan credit requirements can you expect, and what do you do if you have a not-so-great score?

Read on to learn everything you need to know to get sailing as soon as possible — without spending a fortune.

Different Types of Boat Loan Options

First things first: what kind of loan can you use to finance a boat in the first place? Though auto loans are available far and wide, not quite as many lenders advertise financing programs aimed at water-faring vehicles.

But there are a number of different options available to those looking to finance their boat purchase. Here are some of the most common.

Collateral Loan

A collateral loan, which is similar to the one you might have on your car, may be available through the boat dealership. Just as with a traditional auto loan (and as the name suggests), in this loan, the boat acts as collateral. That means that if you default on your payments, the lender has the right to take it back, also known as a repossession.

Home Equity Loan

A home equity loan is a loan that uses the equity of your home to take out a loan or line of credit. It can be used to purchase a boat — and may be a very good financial option, given that these loans are often tax-deductible. Home equity loans also offer lower interest rates than credit cards and other types of unsecured debt, according to U.S. News.

Unsecured Loan

You can take out an unsecured personal loan for pretty much any purpose, given you have a high enough credit score. However, because these loans don’t have any kind of collateral involved, they generally come at higher interest rates than other options.

Credit Card

A credit card with a high enough limit to allow you to make a substantial down payment and regular monthly payments is another option, but we don’t recommend this approach. Revolving credit card debt comes at a high cost with interest rates frequently reaching over 20% APR, which means you’ll be paying a whole lot more for your boat than the figure you see on the price tag!

Where Can You Get a Boat Loan?

Now that we’ve gone over which types of loans can be used for purchasing a boat, let’s talk about where to get them.

  • The boat dealer may offer loans directly, just as you’d expect to find in-house auto loans available at certain car dealerships. These are generally collateral loans and may come with additional incentives, such as manufacturer deals and warranties — but it’s important to shop around and compare rates before you make a final decision.
  • Banks, credit unions, and other financial institutions may offer boat-specific loans as well as personal (unsecured) loans and lines of home equity credit. They may offer better interest rates than the ones you’d find at the dealership, which could save you money even after you factor in those special “deals” the boat seller has on offer.
  • Peer-to-peer lenders, like Prosper and Lending Club, can help you secure a loan directly from a private individual — which might help you find a better deal than you would at a traditional financial institution.

Boat Loan Credit Requirements: What You Should Know

As with any financing program, when you’re shopping for a boat loan, you should know that your credit score can have a serious impact on your overall agreement terms — and how much you’ll end up paying for your new boat altogether.

While many lenders will extend loans to those with poor or nonexistent credit history, these loans many come with sky-high interest rates that will likely serve only to further complicate your financial situation.

You should also know that just about any boat loan will require a substantial down payment, which means you’ll need to come up with about 10-25% of the boat’s total cost out of pocket in order to initiate the sale.

You don’t want to drain your entire savings account on what ultimately amounts to a frivolous purchase, no matter how tempting it may be. So, t’s important to look closely at your budget to determine how much boat you can actually afford, and to save up your down payment well ahead of time.

If you’re already in debt or struggling with a low credit score, your best option might be to repair your finances before you go shopping for a new boat. Fortunately, we’ve got tons of tips and tricks to help you get out of debt as quickly as possible and improve your credit score, which can help you get a boat loan with much better terms. Here are a few simple steps to take to get you started on the road to better credit.

  • Pay each of your credit accounts on time, and contribute at least the minimum payment amount. If you can afford to pay more than the minimum, always pay toward the principal amount if your lender gives you the option. This will decrease the total amount of interest you pay over the course of the loan.
  • Avoid closing any existing lines of credit — but don’t try to open a host of new ones at the same time, either. Since the total length of your credit history plays an important part in how the bureaus calculate your score, keeping old accounts open can be helpful even if you’re no longer using them.
  • Having a diversity of credit types can also be a helpful factor. But at the same time, attempting to open several new accounts at once can create multiple hard credit checks, which can read as a red flag to bureaus — so don’t go crazy trying to establish a bunch of new accounts at once.
  • Pay off your debts before taking out any new loans. Regardless of your credit score, revolving debt is costly and acts as a weighty financial anchor. You’ll enjoy your new purchase much more once you’re able to afford it without worrying about how to make ends meet!

Purchasing a boat with a loan is similar to financing a car (or any other object or project): it can be an effective way to get what you want today even if you don’t have the money to pay for it in full immediately. However, shopping around to secure the best loan terms is an important step toward ensuring that your new toy doesn’t put you into a financial tailspin.

For more information on shopping for personal loans, check out our series of loan reviews, including the best personal online loans, the best good credit personal loans, and the best personal loans for bad credit.

Bon voyage!