Owning a boat and sailing around the globe is the dream of many. When you get your finances in order and know how to procure a boat loan, however, you are one step closer to making that dream a reality. The next step is the down payment. Being able to make a large down payment on your boat greatly increases your chances of securing a decent boat loan. So what is a typical down payment on a boat?
Let’s find out.
What is a Down Payment?
If you have ever taken out a car loan or put a mortgage on a home, then you are already familiar with down payments. A down payment is defined as the total out-of-pocket cost that you are initially paying towards your boat. Once you have paid the down payment, the boat loan covers the remaining cost, and then you repay the loan.
What is the Average Down Payment on a Boat?
Although home, car, and boat loans all work the same way, there are a few differences when it comes to the down payment. Your creditworthiness is one of the biggest factors, but the down payment is also calculated using the cost of the boat.
Generally, if you plan on purchasing a boat that costs less than $150,000, your down payment will be around 10% of the overall cost. So, if the boat you have an eye on is $100,000, expect a $10,000 down payment.
Planning on purchasing something a bit more luxurious? Any boat between $150,000 and $250,000 has a 15% down payment. For example, a $235,000 boat would have a down payment of $35,250.
Yachts and houseboats that cost around $500,000, the down payment is 20%. That means you will have a down payment of around $100,000.
However, in the event you are deemed a risky investment by the lender or financial institution, you may be required to pay a higher down payment. Some financial agencies may ask for 30%, regardless of the cost of the boat.
Tips on How to Lower The Required Down Payment
A 10-20% down payment could be intimidating, especially when you want to purchase a higher-end vessel or yacht. Fortunately, there are some ways to reduce the cost of a down payment, including:
- Paying off other debts to decrease your debt-to-income (DTI) ratio. Lowering your DTI shows lenders that you are less of a risk. A lower DTI also means that you could get away with a smaller down payment. Focus on paying off auto loans, mortgages, student loans, and similar bills.
- Raising your credit score. The higher the credit score, the better you appear to lenders. Often, a decent credit score lowers your down payment.
- Getting a collateral-based loan. Lenders like collateral-based loans, because you are using something with equity, such as a car or home, to secure your boat loan.
- Buying a newer boat. Since the chance of there being something wrong with an older boat is higher, lenders make newer boat models more enticing by offering lower down payments on them.
- Shortening the loan term. Making higher monthly payments or taking out a shorter loan often means that you will have a reduced down payment. The only exception is if the boat you are purchasing is older.
Should I Put More or Less Money Down on a Boat?
The best strategy when purchasing a boat is to do a higher down payment. The more you pay initially, the lower your interest rate. However, if you do not want to put a strain on your finances, a lower down payment is also viable. Starting with a lower down payment may also give you the opportunity to refinance later for a lower interest rate.
That said, if you have the money, opt for the higher down payment.
Are Down Payments Always Required?
Though some lenders do offer the option of a $0 down payment, it is always a wise choice to put money down on your new boat. Buying a boat without a down payment usually means that your credit score is perfect and that your DTI (debt to income ratio) is low.
But there is another reason why you should always put a down payment down on a purchase like a boat. Without a down payment, you are forced to pay higher monthly payments and higher interest on a longer loan term. It truly depends on your financial standing. Be sure to review your budget before deciding if taking out a loan without a down payment is the right option for you.
Let Us Find You a Boat
The typical down payment on a boat is between 10-20% of the price. Depending on your credit score and finances, you may be able to lower the down payment. Knowing that, you can begin to budget accordingly.
When you are looking for the boat of your dreams, turn to Yacht Brokers of Annapolis. We have years of experience working with boating enthusiasts like you. Whether you need more information on boat loans, down payments, or have a boat you would like to buy, our team is here to help. Why not give us a call today at 410-206-2755 to schedule a consultation?