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How Much Boat Can You Afford? (Simple Calculator)

Unless you are purchasing a boat for business reasons, getting one is a pretty big luxury. So much in fact that only 1 in 10 U.S. households own a boat. Affording one is not easy, but in this article, I will tell you exactly how much you can afford. So how much can you afford?

Most people can afford a boat that has a monthly payment of 10% or less than their monthly income. Keep in mind, monthly payment includes more than just loan payment, they also include storage costs and don’t rule out fuel and maintenance costs as well.

The 10% or less rule may not apply to everyone though. If you are already paying a high percentage of your income to other debts like mortgage or car payments, you may not be able to afford anywhere near 10% or even a boat at all. Also, some people might just want to spend cash on a boat and not get a loan for it.

Calculate how much boat you can afford

To find exactly how much boat you can afford, you first need to calculate your DTI (debt to income ratio). This can be done by following a couple of simple steps explained below from WellsFargo.com. If you know your DTI already, you can click here to skip down to the calculator.

Step 1: Add up all your monthly bills which may include your mortgage/rent, student loans, car loans, boat loan, credit card debt payments, child support payments, etc. Do not add groceries, gas, utilities, restaurant, or any payments like that.

Step 2: After you found the total of all your monthly debt, now divide that number by your gross monthly income (income before taxes). Gross monthly income can include salary, child support, rental income, retirement payments, etc.

Step 3: Take the number you get and change it into a percentage, that’s your DTI.

DTI calculation example

House payment ($1,200) + Auto loan ($400) + Student loan ($200) = $1,800 Total Monthly Debt

Salary ($5,000) + Child support ($300) + Rental Income ($700) = $6,000 Gross Monthly Income

$1,800 total monthly debt Divided By $6,000 gross monthly income = 0.3 or in other words a 30% DTI

What’s a good DTI?

According to Wells Fargo, a good DTI is 35% or less, 36%-49% could improve but is ok, and 50% and over is bad and action should be taken. So as long as you’re under 50% after you add in the price of your boat, you are doing fine.

How much boat can you afford calculator

Now that you have your DTI, you can find how much boat you can afford, but there’s one last thing you need to do. You need to choose what DTI would be the absolute most you want to have once you add on a boat loan to your total monthly debt. All people have different lifestyles and spend different amounts of money, but the highest I’d recommend going is only 43% DTI as this is the loaning thresholds many banks have.

But if you don’t plan on getting another loan anytime soon or you believe your income will go up, going up to 50% may be the option for you. Also remember that the more you pay on your boat loan, the quicker the loan will be over and your DTI will go down. So sometimes going with a higher DTI might be good if you have a short loan term and pay your loan debt quicker.

Now that you’ve figured all that out, it’s time to put it into the calculator to see exactly how much boat you can afford:

Is it better to spend cash or get a loan on a boat?

So, now that you know how much you can spend on a boat, it’s time to make the decision to either get a loan or just buy it straight up with cash. So let’s look at the pros and cons of both.

Pros and cons of spending cash on a boat

Pros
  • Your DTI will not change if you use only cash (no debt)
  • Save money by not paying years of interest payments
  • You will probably not overspend money on a boat
  • You can sell your boat, and get the full value for it
Cons
  • Not everyone has that much cash lying around
  • Sometimes people will go into their retirement and emergency savings to pay
  • Sometimes people will buy things like a boat instead of paying off excess debt with cash

Pros and cons of getting a boat loan

Pros
  • You don’t have to have all the money right away (just the down payment)
  • You maintain your cash reserve
  • You can build credit when you get an auto loan
Cons
  • You go into debt and raise your DTI
  • Have to pay extra money for interest payments to the bank

So which is better?

Obviously, this decision comes down to you, but if you already have a high DTI I would recommend buying a boat with cash or at least putting down a large chunk of cash. If you have a low DTI and also not very much extra cash lying around, I would recommend getting a loan.

In the long term, you will always end up saving more money by either paying cash or paying a larger down payment. This is because of interest rates, and for boat loans, they can actually get pretty pricey (like 4-6 percent a year).

Is it easier to finance a new or used boat?

Generally, it will be easier to finance a new boat because new boats usually come from the dealer and dealers are very good at arranging you with loans. However, it will usually be easier for you to get qualified for a used boat loan because it generally is much cheaper.

You will generally have to go to the creditors yourself to get a used boat loan because they’re usually not sold by dealers. This makes the process a little less convenient, but it’s still not that bad.

How much money do you have to put down on a boat loan?

An average down payment for a boat loan is between 10% to 30% depending on many factors such as your credit score, DTI, loan term, loan amount, the boat age, etc. Generally the higher risk you are to the lender to not pay your loan, the more money you will have to put down. Keep in mind that you can pay anywhere over the minimum down payment if you want to shorten the span of your loan or get a cheaper monthly bill.

If you want to know more about how you can lower your down payment and the difference between a high and low down payment on a boat loan, check out this article I wrote by clicking here.

What debt to income (DTI) ratio do you need to qualify for a boat loan?

There’s usually not a single DTI requirement for a boat loan because it generally depends on many factors including your loan amount, how long your loan is, your own financial situation, etc. However, you generally will not be able to qualify for a boat loan if your DTI is over 50% and many lenders like to see a DTI of 43% or lower.

So if you have a high DTI, you might have to pay off your debts or get rid of them somehow in order for a lender to consider you for a boat loan.

What credit score do you need to qualify for a boat loan?

Again, this will depend on many factors such as your financial situation, your loan amount, and loan length, however, expect to have at least a 700 credit score in order to secure a boat loan from a good creditor. If you do have a lower score, you may have to pay a higher interest rate or set aside a larger down payment amount.

Some boat loan lenders will promise they will give you a loan with credit scores even as low as 550, but make sure you are not getting screwed over with high-interest fees or any other fees that may be attached. If you want to find out more about getting a good loan with a lower credit score, check out this article I wrote.

What is the average annual interest rate for a boat loan?

According to CreditKarma.com, as of August 2021, the average boat loan annual percentage interest rate (APR) is 4%-6%. They also say that factors such as the type of boat, boat age, credit score, loan term, and loan amount are all factors that could affect the annual interest rate.

Keep in mind interest rates can change a lot, so depending on when you are reading this, it may be much different. Even from today (December 29, 2021) I found a boat loan interest rate of only 3.74% from Southeast Financial.

Should you get a more expensive boat and a long loan, or a cheaper boat and a short loan? (both have same monthly payment)

When you finally get your maximum monthly boat payment, you may face this issue. Obviously the more you pay on your loan, the shorter the loan lasts. The shorter the loan also means the smallest amount of interest paid to the bank.

So in the long run, you will save more money by getting a cheaper boat with a short loan not only because it’s cheaper, but you will also pay fewer interest fees to the bank. Getting a more expensive boat with a longer loan is also a completely viable option as well though. It all comes down to personal preference.

One thing I can say though is if you plan on getting another loan in the future on something (mortgage, auto, business), I would recommend going with the shortest loan possible to get it out of your DTI as quickly as possible. This will open up more space for you to get other loans such as the ones mentioned.

Where should you purchase a boat?

Now that you’ve learned how much boat you can afford and about the lending process, it’s time to purchase a boat. The big question you have to first ask is if you want a new boat or a used boat.

Generally, I recommend trying to find a used boat as even a boat from just a couple of years ago could be marked down a whole lot from their MSRP price. Expect a new boat to depreciate 10-15% of their value in the first year of use, 20-30% by the fifth, and 30-40% by the tenth year of use. After the tenth year, depreciation will generally slow down significantly.

Check out this article I wrote to better understand boat depreciation and how much you can expect with the kind of boat you want to get.

Although new boat depreciation is fast, this decision is all up to you. A con of buying a used boat is it’s much harder to find the exact one that you want.

Where to buy a new boat

The best and most common place to buy a new boat is the dealer. Depending on the brand or type of boat you want, there are plenty of dealers across the country that will have whatever kind of boat you are looking for. Dealers also usually have an online website so you can see exactly the kinds of boats they have in stock before you go.

The second place you could look is online on websites such as BoatTrader.com, BoatShop24.com, and YachtWorld.com. Many of these sights have many used boats, but there are new boats as well.

Another method to finding new boats is to go directly to the brand website and find a dealer through them. Most of these websites will make it super simple to find a dealer with exactly the kind of boat you want, or they’ll build it and send it out for you.

Where to buy a used boat

Used boats can be bought pretty much everywhere you can find them. On the side of the street, your neighbor named Tod, Craigslist, Facebook marketplace, dealers, and BoatTrader.com are a few places I can name on the top of my head.

Generally though, you will have the most luck finding what you want on the internet. One word of caution is dealers tend to charge you more than individuals for the same boat.

Where should you get a boat loan from?

Many banks and local credit unions both offer great deals when searching for a boat loan, however, I always recommend doing your research on any bank or credit union you are lending from. Some could be bad and put in scummy ways to steal your money.

Here are a few banks that are very well known in the industry and you should be okay going with them (remember always still do your research).

  • U.S. Bank
  • Wells Fargo
  • USSA

Many times if you are buying from a dealer, they will set you up with a good boat loan which is very convenient. However, you should still make sure you way in other options so you don’t get ripped off with fees and high-interest rates.

What are the best storage options for a boat?

Now that you’ve figured out your boat situation, now you will probably need to store it. Unless you can put it into your garage or driveway, this is probably going to cost you some money. So here are your options:

  • Indoor Storage: the most expensive option, but most protective option. Many times indoor storage can be hard to find unless you go with a giant dry stack building (boatel).
  • Dry Outdoor Storage: A cheaper method that is much easier to find availability for when needed. The disadvantage is the fact that even if rapped, it’s still out in the elements which could cause some damage, also being outside leads to a higher risk of it getting stolen.
  • In-Water Storage: If your marina your using offers it, just leaving your boat in the water all winter might be the most cost-effective and simplest way of storing your boat. The downsides would be if the agitator breaks or the marina loses power, your boat will be at risk of ice damage.

Another thing you can do that will give you good storage for usually a good price, is try to find storage units in the area that could fit a boat. Generally, these won’t be very expensive, and you can use them to store other stuff as well.

Are there other options besides buying a boat?

Yes, renting a boat may be the best option for you especially if you are new to boating. A good idea would be to rent out a couple of boats during the course of the season, and then make the decision if you want to buy a boat or not. You also get to test different kinds of boats to see what you like best.

I’ve written a whole article on if you should buy or rent a boat, check it out by clicking here. The article even gives you a calculator to determine the time you need to spend on a new boat in order for it to be worth it over renting.

Sam