How Much Boat Can I Afford?

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Boat ownership is one of the joys of life. The enjoyment of being on the water is a great way to blow off steam and recharge. It’s obvious why a person would want to buy a boat but less obvious is, “How much to spend?”

3 Steps to Determine How Much You Can Afford to Spend on a Boat

Step 1: Determine the Ongoing Cost of Ownership

The first thing to identify is the cost of boat ownership, not only the price of the boat itself. You’ll want to identify how much it will cost to use the boat. The main items to consider would be:

  • Storage/ Moorage – Will there be a cost to store the boat in or out of the water?
  • Fuel – How much will it cost to operate the boat?
  • Insurance – How much is the annual or monthly rate for the insurance?
  • Maintenance – What is the expectation for service and repair costs?

Fortunately, the ownership costs can be relatively low. However, taking the associated costs into consideration will ensure that you do not get caught off guard with additional bills and allow you to concentrate on the good part- having fun on the water with friends and family.

Step 2: Setting a Value for the Boat Based on Usage

Once you’ve identified the associated costs, the next step is to determine how much boat to buy. This can vary based on how often you’re planning on using the boat and what level of enthusiast you are. If you’re a person that uses the boat often or a huge boating enthusiast, it may make sense to spend a bit more. Another consideration is your threshold for maintenance. If you’re considering a used boat, it may make sense to buy something a few years newer as the service and repair can be less time and resource consuming.

Conversely, if you live in a climate that limits boat usage or if your intended use is otherwise limited, a lower priced boat might make more sense. The most important part of this decision is to be honest with yourself about your boating plans and select a boat accordingly.

Step 3: Calculating Your Monthly Boat Payments

There are typically two ways to pay for a boat. Either with cash or financing. If you’re paying cash, it’s a relatively simple decision based on your savings and comfort level in giving up your cash. If you’re financing, there are some conventional tools to help you determine how much you should spend.

Finance companies establish affordability via a calculation called “Debt to Income Ratio” or DTI for short. Your DTI takes into consideration your monthly debt shown on your credit bureau and gross monthly income. It does not consider items not reported on your credit bureau such as Insurance, utilities, food, entertainment, etc.

The marine lending industry usually has a maximum Debt to Income Ratio of 50% or less. In order to calculate your DTI, you divide your monthly debt by your total gross monthly income.  For example:

  • $993 Credit Bureau Monthly debt (auto, credit card, student loan, etc.) + $1200 housing payment (rent or mortgage) + $300 estimated new boat payment = $2493 TOTAL MONTHLY DEBT.
  • $6000 in gross monthly income (including income tax) + any potential additional monthly income (child support, rental income, retirement, disability, etc.) = $6000 TOTAL MONTHLY INCOME
  • $2493 Total Monthly Debt divided by $6000 Total Monthly Income would have a DTI of 42%

In this scenario a $300 monthly boat payment would be affordable and could potentially be even higher if you found a boat that was a little more expensive.

Please note that some lenders have different Debt to Income Ratios based on income levels. As to be expected, if your income level is relatively low, it may make more sense for a lower DTI as you will want more available income after your monthly bills for things like utilities, insurance, food, utilities, etc.

The best way to determine a boat payment is to educate yourself as to a realistic rate and term for the boat you are considering and your credit profile. Contacting a marine lending professional is generally the best way to acquire financing. There are other options for lines of credit, but marine lenders typically will offer the best rate and term combination.

After you’ve determined a realistic rate and term, you can use a boat loan calculator to run different price scenarios and get an idea about how much your monthly payment will be. This is a great way to set payment expectations. It will allow you to back into the payments for a boat that fits your budget and intended use. 

Final Thoughts On Buying a Boat

The key to buying the boat buying process is to be informed. Whether it’s budget, boat specifications or usage, having the correct information will allow you to save time, money and hassle. The whole point of buying a boat is to enjoy life. Taking a moment to determine which boat is going to offer the most enjoyment for your money will ensure that experience is fun without ever feeling overextended.

Frequently Asked Questions

What is the minimum credit score for a boat loan?

Although it is sometimes possible to qualify for a boat loan with FICO credit scores in the 500s, generally you will need 600+ along with a low debt to income ratio to qualify.

How much do I need to put down on a boat loan?

To qualify for a boat loan with bad credit you need to put down a minimum of 10% and the boat must be less than 15 years old.

How long are boat loans usually?

For bad credit loans the maximum term length is typically 15 years. For those with excellent credit you can get terms up to 20 years.

How to get a boat loan for a private seller?

At SeaDream, you are able to buy from a private seller in addition to dealers, brokers and auctions. There are no penalties for private party transactions and the rates and terms are the same as purchasing from a dealer.

Author

Thomas Schumacher

CEO ~ SeaDream, Inc.
Tom Schumacher is the president of SeaDream Inc., the leader in boat financing. He as over 20 years of experience in the finance industry and is widely regarded as one of the industry experts on boat financing.

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