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Boat purchases can cost as much as a house in many instances, so how do you possibly pay that large of an amount? Long-term boat loans offer up to 20 years of financing, making it easy for a variety of different people to purchase the boat of their dreams. For more affordable boats or those with a higher income, short-term and medium-term loans also exist, often with lower boat loan rates than long-term loans.
So which boat loan length is for you? And just how long can you finance a boat? That largely depends on your credit score, the specific boat you’re buying, and your monthly budget.
How Long Can You Finance a Boat for?
- Boat loans range from short-term to medium-term and long-term lengths.
- Short-term boat loans span just a few years.
Medium-term boat loans range from about six years to 15 years.
- Long-term loans go all the way up to 20 years, sometimes more.
Why Is the Length of Your Boat Loan Important?
Imagine setting sail on the glistening waters, feeling the breeze caressing your face as you embark on an adventure with your very own boat. Owning a boat can be a dream come true, but it's essential to understand how boat loans work, particularly the length of the loan, to ensure smooth sailing on your financial journey.
In simple terms, the length of your boat loan refers to the amount of time you have to repay the money you borrow to buy your beloved watercraft. It's like a roadmap that outlines the duration of your financial commitment and influences how much you pay each month.
Here’s why the length of your boat loan is more important than you might think:
- It directly impacts your monthly payments. Opting for a shorter loan period will increase your monthly payments but result in less interest paid overall. On the other hand, longer loan terms can offer more manageable monthly payments but might lead to higher total interest costs.
- You may become debt-free quicker with shorter loan terms. By clearing your boat loan faster, you gain financial flexibility to pursue other goals and investments without the burden of a prolonged debt hanging over you.
- It affects the amount of interest you'll pay over the loan's life. Longer loans may appear attractive with lower monthly payments, but they often result in higher overall interest expenses. Keeping the loan duration as short as possible can save you a substantial amount in interest payments.
- Depreciation is worse with long-term loans. Boats, like any other asset, tend to depreciate over time. Choosing a loan term that aligns with your boat's expected depreciation rate is essential. If you finance the boat for a more extended period than its useful life, you may end up owing more than the boat's value—an undesirable situation known as being underwater on your loan.
Short-Term Boat Loans
Short-term boat loans are financing options that have a relatively brief repayment period compared to traditional long-term loans. These loans are typically designed to be repaid within a few years, making them an attractive choice for borrowers who wish to pay off their boat purchase quickly and minimize the interest they’ll pay.
What’s the Typical Boat Loan Length for Short-Term Loans?
Short-term boat loans can range from two to 10 years, and are meant for boats with a smaller price tag or for buyers who pay a higher down payment. You’ll have higher monthly payments but will pay significantly less over the life of the loan.
What are the Pros and Cons of Short-Term Boat Loans?
There are both good and bad elements to a short-term boat loan, depending on your financials.
Pros of Short-Term Boat Loans
- Lower total interest costs: With shorter loan terms, you'll end up paying less in total interest over the life of the loan. This can potentially save you thousands of dollars compared to a longer-term loan.
- Faster ownership: Short-term boat loans help you become the full owner of your boat more quickly. Owning the boat outright can provide a sense of pride and freedom, and you won't have to worry about monthly payments once the loan is paid off.
- Equity build-up: By paying off the loan faster, you build equity in the boat quicker. If you plan to sell or trade in the boat in the future, having more equity can be advantageous.
Cons of Short-Term Boat Loans
- Higher monthly payments: One of the main challenges of short-term loans is that they come with higher monthly payments compared to longer-term options. Borrowers need to ensure they can comfortably afford these higher payments without straining their budgets.
- Limited eligibility: Short-term boat loans may have stricter qualification criteria due to the higher monthly payment demands. Lenders might require a more robust credit score and financial stability to approve the loan.
- Depreciation risk: While shorter loan terms can help you avoid being underwater on your loan, it's crucial to consider the boat's depreciation rate. If the boat's value depreciates faster than you're paying off the loan, you could still face an imbalance between the boat's worth and your loan amount.
Example of a Short-Term Boat Loan
Let's dive into an example of how a short-term boat loan works in practice, using a handy loan payment calculator to make the process as easy as possible (we’ll go into the actual formula further down in the article).
Let’s say your loan looks like this:
- Loan amount: $40,000
- Loan term: Five years (60 months)
- Interest rate: 4.5% APR
Our calculator tells us that you should estimate about $746/month with these terms. You’ll also pay about $4,743 in interest.
Medium-Term Boat Loans
Medium-term boat loans offer a balanced approach between short-term and long-term financing options. These loans typically have a repayment period ranging from about six to 15 years, making them an appealing choice for borrowers who seek a middle ground between faster ownership and manageable monthly payments.
How Long is a Medium-Term Boat Loan?
A medium-term boat loan offers up to 15 years to repay your loan. Arguably the most common type of loan for future boat owners, medium-term loans offer the best of both worlds: manageable payments and slightly reduced interest.
What are the Pros and Cons of Medium-Term Boat Loans?
Medium-term loans have advantages and disadvantages just as short-term loans.
Pros of Medium-Term Boat Loans
- Balanced monthly payments: Compared to short-term loans, medium-term loans offer lower monthly payments. This can provide borrowers with increased financial flexibility while still making steady progress towards paying off their boat.
- Reasonable interest costs: Although medium-term loans may result in slightly higher total interest payments compared to short-term loans, they still tend to have lower overall interest costs than long-term loans.
- Potential for equity build-up: With medium-term loans, borrowers can still build equity in the boat, making it an attractive option for those considering future upgrades or reselling the boat.
Cons of Medium-Term Boat Loans
- Moderate interest costs: While medium-term loans are more cost-effective than long-term loans, they may still result in higher total interest payments compared to shorter loan terms.
- Longer commitment: A medium-term loan requires a more extended commitment than a short-term loan. Borrowers should consider their future plans and financial stability to ensure they can comfortably manage the loan over the designated period.
Example of a Medium-Term Boat Loan
Let's explore an example of a medium-term boat loan with a 15-year repayment period. We’ll use the same calculator as above.
- Loan amount: $40,000
- Loan term: 15 years (180 months)
- Interest rate: 4.75% APR
According to our calculator, you’d pay about $311 each month and you’d pay a much higher $16,004 in interest.
Long-term Boat Loans
Long-term boat loans are financing arrangements with extended repayment periods, usually spanning 20 years. These loans are designed to offer borrowers lower monthly payments in exchange for an extended commitment to repay the loan over a more extended period. For borrowers with a more limited income or who need smaller monthly payments.
How Long is a Long-Term Boat Loan?
When you opt for a long-term loan, you’re looking at a 20-year term, and in rare cases, even longer. With a loan term of two decades, borrowers can enjoy the advantage of significantly reduced monthly payments compared to shorter-term loans.
What are the Pros and Cons of Long-Term Boat Loans?
Boat buyers should consider long-term boat loans carefully, as there are serious financial considerations that go into a 20-year repayment term.
Pros of Long-Term Boat Loans:
- Lowest monthly payments: Long-term boat loans offer the lowest monthly payments between all three of these options, making it more feasible for borrowers on tighter budgets or those seeking to manage other financial responsibilities simultaneously.
- Ability to afford high-priced boats: For high-priced boats, like luxury yachts, long-term loans can make ownership more accessible by spreading the cost over a more extended period.
- Easier cash flow management: Lower monthly payments can free up more cash flow each month, allowing borrowers to allocate funds to other investments or financial goals.
Cons of Long-Term Boat Loans:
- Sky-high interest costs: The most significant disadvantage of long-term loans is the higher total interest costs over the extended repayment period. Borrowers end up paying significantly more in interest compared to shorter-term loans.
- Slower equity build-up: With lower monthly payments, equity build-up in the boat is slower, if you build up any at all. This means it may take longer to become the full owner of the boat, and if you plan to sell or trade it in the future, you might have less equity.
- Extended commitment: Long-term loans require a substantial commitment over many years. Borrowers must carefully consider their financial stability, future plans, and willingness to be tied to the loan for an extended period.
Example of a Long-Term Boat Loan
Let's explore an example of a long-term boat loan with a 20-year repayment period, again using the same calculator that we used for the last two examples.
- Loan amount: $250,000 (to account for the large purchase price that often comes with a long-term loan)
- Loan term: 20 years (240 months)
- Interest rate: 5.25% APR
Our calculator tells us that this loan would require monthly payments of $1,755 and you’d be paying a whopping $171,250 in interest.
Boat loans used to be more limited in length and with larger down payments; today, terms of 10 to 20 years are quite common. - Shawn Rogan, President of Sterling Associates, in an Interview for OnTheWater.com
Comparing Short, Medium, and Long-Term Boat Financing
Short, medium, and long-term loans have many differences besides just their loan terms. Since they all hold different risk levels, certain loans will have lower interest rates, but others are more flexible. Here’s a table that compares each loan in more detail: