Financing a boat can be a difficult thing to do, but hopefully this article can help you out. There are obviously many factors that go into getting a boat loan, but one of the biggest is how much is your down payment.
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.
From all the factors I’ve said above, if any of them make you riskier to a lender, you will probably have a higher downp ayment requirement. A higher down payment isn’t necessarily bad though. If you put down more money, you will end up saving money in interest because you will have a shorter term, lower monthly bill, and/or a lower interest rate.
A higher down payment also helps you avoid having negative equity in your boat. This happens when your boat depreciates so much that you owe more on your boat than what your boat is actually worth. Check this link out to understand this more.
Tips to lower your required down payment on a boat loan
If you don’t have the cash to afford a big down payment, there are many ways that you can get lenders to allow you to pay less as described in the list below. Although, it might be better to save your money until you can afford the down payment amount.
- Work on raising your credit score: Having a high credit score makes you more attractive to lenders because you are probably less of a risk to loan money to than if your credit score was low. Therefore, many times these lenders will be okay with you having a small down payment. Check out this article to help you raise your credit score.
- Pay off your other debts to lower your debt to income ratio (DTI): The lower your DTI, the less risk you are to lenders. The less risk you are, the more likely they will allow you to give them a small down payment. Debts to pay off could include student loans, auto loans, mortgages, etc.
- Use a collateral-based loan: Collateral-based loans will make lenders much more willing to give a lower down payment requirement. This is because with this type of loan you use something you own and have equity in (the boat, car, home, etc.) to secure the loan. The risk is that if you don’t pay off your boat loan, the lender may be able to take equity from whatever you gave up as a collateral.
- Shorten your loan term: By getting a cheaper boat or paying more money each month, you can shorten your loan term. Generally, lenders will lower their down payment requirements if you go for a shorter loan term. An exception would be if the boat is very old, lenders may still require a high down payment.
- Use your tax refund: Instead of blowing your tax refund on a new mod for your truck, maybe consider saving it for your down payment on a boat.
- Shop around different lenders: All lenders are different, so make sure to check as many as you can to find one that requires a down payment you can afford.
- Look for a newer boat: Generally, older boats will require a higher down payment because the lender is afraid that something might go wrong with it before you pay off your debt to them.
Is it better to put down more or less money on a boat loan?
It’s usually always better in the long term to put a higher down payment on a boat loan, but if you don’t want to drain your savings, a lower one may be better for you.
Having a higher down payment will generally give you a better interest rate to start. However, if you do start with a low down payment, you can usually refinance your loan later down the road and get a lower interest rate. So if you have the money on hand, I would just recommend starting with a higher down payment, but if not look at loans that you can refinance later.
Having a higher down payment also gives you the ability to have a smaller loan amount and a smaller monthly payment.
Do you always have to put a down payment on a boat?
It’s always recommended to put money down on a boat loan, but some lenders do allow no down payment. However, you will probably need to have a high credit score and low DTI in order for these lenders to not require you to put money down.
Also, by not putting any money down you could end up losing a lot of money in the long run by high interest rates, a longer loan term, and high monthly payments. Although, at the same time that’s true, if you put a lot of money down you could end up making more money putting that cash towards other things such as the stock market.
Lenders that let you have low to no down payment on a boat loan
Pros and cons of a large down payment on a boat loan
What is the average boat loan term?
Boat loan terms can be anywhere between 2 and 20 years long, but the average term is about 8 to 12 years long. Generally, the larger your down payment, the shorter your term will be and the less interest you will have to pay to the bank.
The reason why the terms go for so long is that boats actually don’t depreciate that much when compared to other things such as cars. This is why you can get a pretty good trade-in or resale value for boats.
How to know how much boat you can afford?
If you are about to purchase a boat but don’t exactly know how much you can afford, check out this calculator I created by clicking here. This will give you an idea of how much you can afford and then you can understand how much money you may have to save up for a down payment.