When you first a boat, you may ask yourself whether it’s best to finance a new boat or a used one. Both options have their pros and cons, so it is important to understand the differences between the two, such as the boat loans available. There are several differences between financing a new or used boat, such as the interest rate, loan terms, boat depreciation, and even the inspections. Let’s go into more detail.
When considering whether to finance a new or used boat, you should understand the differences in interest rates. Typically, interest rates for new boats are lower than for used boats. Why? Because lenders consider newer boats to be less risky. Used boats are more of a risk because they may have more maintenance and repair issues than a new model. Furthermore, new boats on the market have a longer lifespan than their predecessors, meaning they can be used for more hours before needing to be replaced. As such, a new boat is a far more attractive investment for lenders. In turn, you, the borrower, receive a lower interest rate.
Boat Loan Terms
Risk also plays a role in determining your boat loan terms. The loan terms for a used boat may be shorter than those for a new boat, which can result in higher monthly payments (which can be counterbalanced by a lower price tag). This is because lenders consider used boats to be a higher risk than new boats. As boats age, they may require more maintenance or repair work, which can be costly. Additionally, lenders may require a larger down payment for a used boat to offset the higher risk. This can make it more difficult for some borrowers to qualify for a loan or afford the payments.
You may be wondering if the credit score you need to secure a decent boat loan will change depending on whether you buy a new or used boat. Generally, lenders will require a higher credit score for a new boat loan compared to a used boat loan, because new boats are more expensive and therefore pose a higher risk for lenders. To qualify for a new boat loan, you may need a credit score of at least 680 (or higher), while a score of 650 may be sufficient for a used boat loan.
Do keep in mind that this will change between lenders. Some are more flexible with their credit score requirements than others. It is always advisable to contact a lender like Atlantic Horizon Capital to determine your specific requirements and options.
Your debt-to-income (DTI) ratio is another factor that lenders consider when deciding whether to approve you for a boat loan. DTI ratio is the percentage of your monthly income that goes toward paying off debts. Lenders will typically require a lower DTI for a new boat loan compared to a used boat loan. Keep in mind risk. Lenders are more wary of giving loans for a used boat that may have expensive issues.
Furthermore, new boat loans tend to be larger, and lenders want to ensure that you can afford the payments. To qualify for a new boat loan, you may need a DTI ratio of 35% or lower, while a DTI ratio of up to 43% may be acceptable for a used boat loan.
Depreciation of Boat Value
Depreciation is another factor that can impact the financing of a boat. New boats can depreciate quickly in the first few years of ownership, whereas used boats may have already experienced a significant amount of depreciation. This can affect the resale value of the boat and may impact the amount you can borrow or the interest rate you are offered. It’s important to carefully consider the depreciation of a boat when choosing between a new or used boat, as it can impact the overall cost of ownership.
For that reason, depreciation is also important to consider as the buyer of the vessel. A boat that is several years old with more on the engine may not run for as long as a newer boat. Consider the cost of ownership, as well as the interest rate on the used boat. You may find that a new boat is more affordable.
Boat Condition and Inspection
A new boat offers one major advantage: it’s brand new and nothing needs repair. With used boats, it’s the opposite and lenders know that. When financing a used boat, lenders may require a marine survey to assess the condition of the boat and ensure it is worth the loan amount. This can add additional costs to the financing process, as borrowers will need to pay for the surveyor’s services. Additionally, lenders may require that any necessary repairs be completed before the loan is approved. This can add further costs to the financing process, and can make it more difficult for borrowers to qualify for a loan.
Looking to Finance Your Dream Boat?
Whether you decide to finance a new boat or a used boat, it’s important to work with a lender who can guide you through the financing process and help you find the best deal possible. Consider your budget, your goals, and your preferences when choosing between a new or used boat. Remember that financing a boat is a significant investment, and taking the time to research your options can save you money and ensure that you have the best boating experience possible.
Atlantic Horizon Capital can help you achieve your boating dreams. We offer exceptional service and flexible boat loan options for both new and used vessels. Get in touch with us today by calling 609-365-1540 or begin your financing application online