Financing a yacht: from full upfront paying to manageable instalments
Your dream motorboat is already in sight, but the question looms: how will you pay for it? While for many is the payment of the full price upfront a matter of course, yacht financing is indeed an interesting alternative. Financing your yacht can serve as a strategic approach that empowers you to distribute the substantial cost into manageable payments over a certain period of time. This method enhances accessibility, making the convenience and pleasure of boat ownership attainable without the financial burden of a full upfront payment. Even if the full price of the yacht is available to you, a yacht financing scheme will free up a substantial part of your budget to pay for other things, be invested or utilized elsewhere.
The fact that you browse onto this website reveals that you are thinking about a boat loan at least. At this point, the whole financing topic might seem like a complex, daunting process. And it kind of is, especially for first-time buyers. But don't let the unknown intimidate you. With the right information, it can become manageable and even straightforward.
Let us demystify the process by taking you through various aspects of motorboat financing. In any case, unless you are a professional banker or working in the financial markets, have your local dealer involved in your plans as he has the experience and network partners who could be of great help for you. Also, don´t rush into all-too shiny special offers, rather take a good look and try to get a comprehensive overview through different offers.
Isn´t a boat loan just the same as an auto credit?
This is often the first reaction when prospective yacht buyers confront themselves with this issue. At a first glance, it may seem that loans for a motorboat are similar to other vehicle financing, but in reality, there are key differences. Boat loans often come with much longer repayment terms. These can comprise a time of up to 15-20 years. Also, interest rates are usually higher due yachts being considered luxury items. Furthermore, the individual boat loans rates generally exceed those of cars and trucks. As millions of cars are sold via credit annually at relatively low prices, there are much less boats financed – and these units have a much higher value. You should therefore expect a longer commitment to repaying the loan and also higher rates.The volume of an oat credit: unseen costs of a yachts
While the purchase price can be established with the help of your local dealer after a few consultations to establish your individual specification relatively easily, be aware that there are more costs to cover. When considering new boat financing, it's essential to look beyond the immediate horizon of the purchase price.
The ebb and flow of motorboat ownership comes with other recurring and unexpected expenses that demand attention. To cover the whole cost, these should be accounted for when setting up a realistic financing plan. Let's shed some light on these key considerations:
Equipment and safety gear: A new built yacht usually comes “empty”. You have to equip the boat with everything necessary aboard, literally from A to Z. That also comprises the safety equipment, like life jackets, fire extinguishers, first aid kits, and other necessary safety equipment. Also crockery, tableware, bed linen, towels and all sorts of bits and pieces need to be brought aboard to make her a fully usable habitat on the sea. Additionally, you might want to consider surplus navigation tools, fish finders, a boat tender or other boating accessories. The range is huge, so can be the costs.
Boat insurance costs: Much like a car, your motor yacht will require insurance. The cost of this will depend on factors like the boat's value, the type and power of its propulsion systems, the area you are sailing and the coverage level you choose.
Skipper an/or crew: On larger yachts starting at around 50 feet professional skippers and even a crew, consisting of sterwards, a chief engineer or deckhands may be employed. We´ve provided a detailed guide on boat crew employment as well which you might check. The cost for skippe and/or crew must be accounted for in your financing plan as well.
Boat Safety Scheme (BSS) Certificate: The Boat Safety Scheme is a public safety initiative owned by the Canal & River Trust and the Environment Agency. Its purpose is to help minimise the risk of boat fires, explosions, or pollution harming visitors to the inland waterways, the waterways' workforce and any other users. A new BSS certificate costs around £245. Although this is a relatively small number in comparison to the larger upfront budgets, the BSS is compulsory with every yacht purchase in the United Kingdom.
Canal and River Trust Licences: This is required if you plan to use your motorboat on any of the waterways managed by the Canal and River Trust - which includes most canals and some rivers in England and Wales. The cost varies depending on the size of the boat.
Fuel and other consumables: Motorboats, especially those with larger engines, can consume a significant amount of fuel. This recurring expense can vary based on usage, engine efficiency, and fuel prices. Establish a realistic budget for these essential consumables.
Harbour Dues, mooring or demurrage: your boat´s berth will cost a fee unless you have a waterfront property with mooring facilities for your boat. Such fees are usually charged monthly or for a whole season by the harbour authorities. The budget is used to pay for services such as navigation lights, safety patrols, dredging and maintaining the harbour facilities. The amount can vary depending on many factors. Consider a safe marina as your home port, both protected effectively against foul weather and the hazards of strangers.
Boat maintenance costs: Regardless of how well you treat your boat, regular maintenance is a necessity. Adhering to the manufacturer´s suggestions for scheduled maintenance will uphold not only the spotless functioning of your yacht but also its resale value over time. Those costs might include engine servicing, cleaning, painting, replacing parts and repairing the constant wear and tear.
Storage fees: Depending on your location, you may need to pay for a spot to keep your boat when not in use. Be it a longer absence due to your work occupation, a vacation or other events. These costs can vary significantly based on location and the size of your boat.
Winterisation: If you live in a colder climate, winterising your motorboat to protect it during off-season months is an additional cost to consider. Usually, harbours offer summer rates for using a berth and winter rates for storing your boat safely on the dry. This can be an open storage or in a protected (and sometimes heated) hall. Budgets needed to pay for winter storage vary, largely depending on the size and weight of your yacht and where it will be stored.
Depreciation: Over time, your motorboat will lose value. While this may not be a direct out-of-pocket expense, it's essential to consider when considering the long-term investment.
Having read all of this, you might ask how much of a surplus budget you should add to the upfront price when calculating the complete sum for the financing scheme. Unfortunately, the variables in these factors are so many that there is no realistic average guess. Some owners have a monthly cost of only 5% of the boat´s price and for some, the drain can reach 10-15%. Your local dealer knowing about the scope of your project and the local specialties, will for sure be of great help. Ask him
What options are there for boat financing?
Understanding loans for a motorboat starts with the creditors. It might surprise you but you are in no way confined to traditional banks or the well-known credit unions when financing your yacht? While they indeed provide time-tested solutions, the financing landscape offers a diverse landscape of alternatives you should also take into consideration.
Consider marine finance companies specialized in boat loan operations only. These have an industry-focused expertise backed by a comprehensive knowledge of marine assets as those companies often solely focus on yacht financing.
Lease arrangements can also let you enjoy the luxury of a boat now, with the option to purchase it later. Conversely, peer-to-peer lending platforms eliminate the traditional middleman, linking borrowers directly with investors. Tapping into your home's equity via a home equity loan or line of credit (HELOC) is another feasible choice. Moreover, specific retirement plans permit loans against your accumulated funds, facilitating another route to finance your dream vessel. For those with a robust portfolio, securities-based lending, where you borrow against your investments without selling them, might be a viable alternative.
In any case, consider to have your tax consultant and/or trustee involved in your boat purchase and financing plans. Avoiding trouble with tax authorities while optimising your portfolio should be a matter of course. Likewise, delve into options to buy your yacht as a company as this which may have its own pros and cons.
The advantages new boat financing options
Nothing comes with just upsides: Boat loans have indeed pros and cons as each option presents its own set of advantages and drawbacks. Some be more appropriate for particular circumstances than others. Here's a comparative analysis of the previously mentioned possibilities:
Financing option | Pros | Cons |
|---|---|---|
Traditional banks and your house bank | Well-regulated, typically offer competitive interest rates, your house bank knows you very well | Strict credit requirements, may not understand specific needs of boat owners |
Credit unions | Lower interest rates, more personal relationship with lender | Membership required, might have less lending capacity |
Marine financing companies | Expert knowledge of boats and boat loans | Higher interest rates, more selective lending |
Leasing | Low upfront costs, flexible terms | No ownership, typically higher total cost |
Peer-to-peer lending | Potentially lower interest rates, easier application process | High credit score often required, higher interest rates for those with less credit |
Home equity loans/HELOC | Potential for lower interest rates, tax-deductible interest | Risk of losing home if unable to repay, fees can add up |
Borrowing from retirement accounts | No credit check required, interest paid back to oneself | Early withdrawal penalties, potential for lost growth |
Securities-based lending | No set repayment schedule, can borrow large amounts | Investment portfolio is collateral, potential for margin call |
As this is just a peek into the multi-facetted landscape of yacht financing options, have a professional to seek guidance from at your side. Boat shows are a good occasion to meet creditors, at least the boat finance specialists, to get a good overview and first negotiations.
Buying and financing motor yacht: the typical journey
To help you envision the process of financing a motorboat, let's break it down into six distinct stages:
Stage 1: Determination of credit amount - Identify the type and cost of the desired motorboat.
Stage 2: Exploration of yacht financers - These could include traditional banks, marine financing companies, leasing, peer-to-peer lending, home equity loans or lines of credit (HELOC), or even borrowing from retirement accounts.
Stage 3: Application for a boat loan - Once a financing method is chosen, proceed with the application process. This usually involves providing details about your financial situation.
Stage 4: Financing agreement - If your application is successful, you will be presented with an agreement outlining the details of your financing arrangement.
Stage 5: Acquisition of the yacht through your local dealer - Upon finalising the agreement, you will receive the financing and can proceed to purchase your chosen motorboat.
Stage 6: Repayment - The final step in financing a motorboat involves adhering to the repayment plan as outlined in your agreement.
Comparing motorboat loans: what to look out for?
Digging deeper beyond the headline features is essential, in light of the budget size and duration of repayment. As with any contract the primary offerings may appear enticing, pivotal information frequently lies within the fine print. This could profoundly influence your financial commitment. Hence, understanding what to scrutinise before sealing the deal is absolutely critical. Again, having an independent counsellor with special knowledge in this field on your side is a good idea.
Boat loan interest rates
Undoubtedly, one key consideration when looking at loans for a motorboat is the interest rate, as it greatly determines the total cost over time. A lower rate translates to lower overall cost, with the exact numbers typically hinging on factors such as your credit score and the borrowed amount. Often a longer duration of the loan directly translates to lower interest rates.
Variable vs fixed boat loans rates
Yacht financing contracts can come with either variable or fixed interest rates. The former fluctuates over time, often mirroring national trends, whereas the latter remains constant throughout your loan's duration. While a fixed rate makes planning ahead easier, flexible rates could potentially go down as well.
BONUS TIP
Use a boat loans calculator: monthly rates snapshot
A great way to get a quick overview with reasonable numbers is by utilising a boat loans calculator. This tool can swiftly generate estimates of potential monthly payments and total interest over the loan period. Just input your desired lending amount, your estimated annual interest rate, and the loan length in months or years. Be aware that the lending amount could be less than the boat's total price if you're considering a down payment. Also, while a ‘financing a boat calculator’ can provide helpful estimates, it may not account for extra costs like taxes or fees - so treat the results as an informative starting point rather than a definitive quote.
Collateral, or not? The boat loan type
This mostly comes down to secured loans (which use your boat as collateral) versus unsecured loans (which do not require collateral). Each has its own set of pros and cons, so it's essential to assess your personal financial situation and risk tolerance before making a decision. By the way, some house banks won´t offer a financing solution for a yacht, even if you present collateral. Some might consider it if you have a long-standing relation and spotless reputation.
Boat insurance requirements
Certain agreements may require a comprehensive setup of yacht insurances for the duration of the loan, especially for secured loans where the motorboat serves as collateral. This is to protect their investment in case of damage or loss to the boat. When looking out for the best fitting boat insurance, you want to disclose the financing scheme of your yacht which helps to define the best suited protecting umbrella for your yacht.
Quick credit or long-term loan?
The length of your loan will also play a prominent role in determining your monthly payments. Longer terms mean lower monthly payments freeing up your capital for other investments. But it also comes with more interest paid over time. Consider your budget and how a shorter or longer term might fit into it.
Down payment
Lenders often require a down payment on loans for a motorboat. The amount needed can vary, but it's usually between 10-30% of the boat's total price. A larger down payment may help to lower your monthly payments and potentially secure a better interest rate.
Luck of a sudden financial bonanza: prepayment penalties
If you happen to be able to repay your yacht´s loan ahead of the agreed schedule, this might be good news for you, but it affects the lender´s expected interest earnings. Some lenders may therefore impose penalties. Make sure, before signature of the contract, whether the loan you're considering has any such clauses.
Additional fees
Be aware of any hidden costs, such as processing or origination fees.
Where to get boat financing in the UK?
In the landscape of boat loans, UK providers such as Lombard Marine Finance and Promarine Finance have emerged as leaders, particularly for their flexible terms and industry expertise. Additionally, Credit unions like CECU can finance up to 90% of the value of new and used boats, while peer-to-peer lending platforms like Zopa and RateSetter offer an alternative to traditional lending. Also talk to your local house bank and don´t forget your personal asset manager to include in your venture.
The bottom line of yacht credits
If financing is your solution to yacht ownership, each step towards it is essential. Well-informed decisions and realistic monetary planning are the base from which you start. Examining the details of potential loans to and exploring the broad spectrum of payment alternatives will give an outlook on whether and how the repayment phase is manageable for you.
If you're contemplating a motor yacht purchase and need more information, feel free to reach out to us. Our team is here to provide guidance and point you in the right direction, ensuring your transition to boat ownership is smooth and hassle-free.