Financing a sailing boat: things to know before buying a yacht on credit

If you are on your way to becoming a proud sailing boat owner, one of the first questions that quickly arises is: "How am I going to pay for this?" For some, the calculation of the purchase price of a sailboat is a harsh reality check, for others the budget needed might well be within financial limits. Financing a sailing boat hinges on various factors, such as its type and age, your history, and the terms of the loan you're considering. In this guide, we'll be delving into costs, examining loan terms, exploring traditional and emerging financing options, and providing practical tools for decision-making. Through this lens, we aim to provide a thorough, accessible understanding of it all, empowering you to make informed decisions on your path to owning a sailing boat.

Financing a sailing yacht is only for the poor…

Far wrong! It is indeed a erroneous belief that only those finance who cannot afford a yacht. It´s the other way round as mostly those who have the entire cost upfront at their disposal opt for the financing option. Why? Because those who have the whole budget – hence also could afford the monthly payments for a loan – prefer not to invest their whole budget into the boat right away. They rather split it: Many owners decide to have their cash either liquid at hand or invest in other things, like a small property. This is especially interesting if you are thinking of becoming a “digital nomad” or even mode aboard your yacht to live on board. This way, a passive income that fully or partially finances the running costs of the yacht is created and, upon returning from your multi-year circumnavigation or sabbatical the boat can be sold and the property utilized.

So, don´t be fooled: financing a yacht can be a clever move. Likewise, if you do not have the purchase price of your dream yacht at hand, financing becomes the key that unlocks your maritime ambitions. This way, you can start your sailing career now instead of endlessly saving against inflation and even afford to go one size up. In any case, your local dealer is competent and trained in showing and explaining the different possibilities with yacht purchase on credit, don´t hesitate to tap that rich source of information.

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How do loans for a sailing boat work?

Financing a sailing boat doesn't follow a single blueprint. Yet, no matter the specifics of your loan, there are common elements you'll encounter. We've broken down key terms and steps you're likely to come across during your journey:

1. Down payment: This is the amount of money you should have at your disposal to be spent upfront. This is because a certain percentage of the boat's total cost is paid upfront. While down payments may be as low as 10% of the total price, it may usually hover at about 20-30%. Here´s the first trick: the more you can contribute as a down payment, the less you need to borrow, reducing your future monthly payments.

2. Loan amount: The remainder of the boat's price—after subtracting the down payment—is the loan amount. This is what you'll be paying off over time. Of course, on this amount the interest will be put on top: financing, as usual, means to pay more over time.

3. Loan term: This is important now. The term, hence the period over which you agree to repay the loan, can be arranged in such a way that you only bridge a few years before paying the full amount. Typically that´s the case when properties or businesses are sold. On the other hand, loan terms can be arranged to last up to 20 years. Typically the loan period is around 12 years for sailing boats currently. Again, the length of the term affects your monthly payments; a shorter term means higher payments but less interest paid overall, and vice versa.

4. Interest rate: The lender will set an interest rate on your loan, influencing the size of your monthly payments. Rates vary based on several factors, including the loan amount, term length, credit score, and whether the boat is new or used. This is were it gets complicated, as lower rates does not necessarily mean less cost and vice versa. We´ll get into this later in this article.

5. Monthly payments: These are your regular payments made to the lender, composed of part of the original loan amount (principal) and the accrued interest. When checking if you can afford to buy your dream sailing yacht, make sure that you are capable of dealing with this figure over the time of the loan month by month. And don´t forget: this is not the only cost your boat is going to come up with.

6. Penalties: While we hope it never comes to this, it's crucial to be aware of potential fines associated with loans for a sailing boat. These can arise if you fail to meet its terms, such as missing a monthly payment or defaulting on the loan. Additionally, some lenders might impose a penalty for early repayment of the loan. That´s important too: If you plan to just bridge a few years before a big payment is awaited, make sure that the early repayment penalty is as low as possible. Usually this is around 1% of the remainder of the credit.

Be aware of the hidden costs of sailboat ownership

When you become the proud owner of a sailing boat, it's not just the price tag of the vessel that needs to be considered. A host of additional sailboat running costs—often overlooked in the excitement of purchasing—start to roll in, each demanding a share of your budget while you're still managing the loan repayments. Talk to fellow boaters on the pontoon, seasond sailors in your yacht club or browse the various yacht forums online to get a picture. As a rule of thumb, expect 3-5% of the yacht´s price as your annual running cost budget. So what´s this budget comprised of?

First up your brand new yacht, when commissioned and handed over by your dealer, is essentially empty. You will need to arrange the full set of basic equipment. That is everything from the safety gear like life jackets, distress signals, life raft, fire extiguishers and such over personal sailing gear, meaning oilskin and foul weather clothing, shoes, hats, crew wear to the blanket, pillows, crockery, tablewear and such. Don´t underestimate this figure: equipping a full family cruising yacht is not an uncomplex task.

Pro tip: If unsure, ask a charter company to send you a copy of their accessory lists for vessels of the same size as yours. Usually, these lists are pinpoint accurate down to the number of tablespoons and screwdrivers.

Secondly, there's sailboat insurance. Even though it might not be a legal requirement in some jurisdictions, we can't stress enough the importance of the boat being insured. Don´t save on insurance: costs for third-party liability can quickly go through the roof, a brand new yacht should always be insured and secured under a thorough umbrella.

Additionally, mooring fees factor in unless you own private docking facilities. Next, you'll have to address the regular maintenance and repairs that ensure your sailing boat stays seaworthy. This includes regular engine servicing, sail and rigging checks, hull cleaning, and any unexpected repairs like sail tears or rigging wear and tear. Over time, you might also consider equipment upgrades, which can include updates to navigation systems, safety equipment, or onboard amenities. Be aware that a well maintained yacht does not suffer from depreciation as much, keeping the resale value is key to limit the loss of money later and make selling the old boat easier.

Operational costs further add to the tally, like fuel for the engine. If your yacht is located in a colder climate, winter storage and/or winterisation costs can become another necessary expense.

How to get boat financing quotations – and what are their pros and cons?

There is no singular route to your dream yacht. Different types of loans and agreements can cater to unique financial situations, credit histories, and personal preferences.

Let's explore these diverse financing options, dissecting how they work and evaluating their associated advantages and pitfalls.

Traditional bank loans

At first, you might want to talk to your bank. Usually you might have a good and long-standing relationship to it and the accountants know you and your financial situation very well. These established institutions provide a well-trodden route, where a specific amount is borrowed from the bank and then repaid alongside accrued interest over a mutually agreed-upon period.

Pros:

• Potentially lower interest rates with good credit.

• Predictable monthly payments.

• The loan amount is not limited to the value of the boat.

Cons:

• Buying a boat with bad credit is extremely tough.

• The application process can be lengthy.

• Potentially high down payments.

• Traditional banks often ask for collateral

Marine-specific lenders

When traditional banks are the universalists, marine-specific lenders are the experts. They provide a vast array of tailored loan products for various watercraft, including sailing boats and yachts. Often, these lenders are joint ventures of shipyards and banks, financing not only end-customers but also the fleets of big charter operators and even the show boats of their dealer network. Their in-depth understanding of the marine industry equips them to devise unique financial strategies for boat owners. This expertise extends to offering loans for both new and used boats, possibilities for refinancing, and even repair loans. Further, their scope of services includes guidance on marine insurance and the necessary boat documentation. As marine-specific lenders may have long-standing and established relationships with your dealer as well, various advantages may arise from this option.

Pros:

• Expertise in the marine industry.

• Flexible terms on loans for a sailing boat.

• Often have partnerships with boat dealers.

• Often, the boat is the collateral, no need to bring in property or other into the contract.

Cons:

• Boat loan rates may be higher than traditional lenders.

• It may be less flexible on credit history.

• When buying second hand boats, these may have stricter requirements for boat condition and age.

Boat dealer financing

If you find the marine-specific lender option attractive, consider financing your new sailing boat through the dealer. This way the dealer will facilitate the purchase process from the start by calculating with and providing or arranging for the loan for the boat right from the beginning. This setup allows for the convenience of choosing and funding the boat in a single location, sometimes with added benefits like promotional interest rates or special terms. The boat typically serves as collateral under this type of financing. Boat dealers, if offering this service, usually prefer this way of setting up a contract and will reward this by offering attractive promotions or bargain.

Pros:

• Convenient and fast.

• Potentially lower interest rates for new boats.

• Dealerships may offer promotional deals.

Cons:

• Of course only limited to boats sold by the dealer.

• May have higher interest rates overall.

Personal loans

These are unsecured loans that offer flexibility in terms of use, including boat purchases. Upon securing one from a lender—be it a bank, credit union, or an online platform—you're committed to reimbursing the predetermined amount over a set period. The notable characteristic of personal loans is that they don't require collateral, like the boat itself or any other asset. Interest rates, loan sums, and tenure are influenced by the lender's policy and the borrower's credit score.

Pros:

• No requirement for collateral.

• Freedom to use the loan as you wish.

• Fast funding times.

Cons:

• Higher interest rates.

• Shorter repayment terms.

• Strict credit requirements.

Credit unions

Credit Unions are member-owned financial institutions that offer similar services to banks. When you take loans for a sailing boat from a credit union, you essentially borrow from a pool of funds that other members have deposited. Membership in the credit union is a requirement to access these services and is usually governed by specific requirements, like geographic residency or industry-related employment.

Pros:

• Generally lower interest rates.

• Personalised customer service.

• Profits are reinvested into the union, benefiting members.

Cons:

• You must be a member.

• May have limited loan options.

• Geographical limitations might apply.

Peer-to-peer lending

Peer-to-peer lending platforms link borrowers and investors directly, eliminating the need for conventional financial intermediaries. Under this method, you propose a specific loan amount for your boat, and upon investor approval, you agree to repay the loan with interest over a specified term.

Pros:

• Potentially lower interest rates.

• Faster loan approval process.

• More flexible credit requirements.

Cons:

• Unstable interest rates.

• Potential for high origination fees.

• Variable customer service quality.

Home equity loans

Home equity loans, or second mortgages, offer a pathway to utilise your home's value to generate funds. Given sufficient home equity, this option might be a feasible solution for boat financing. You receive a lump sum to be repaid on a fixed schedule at a set interest rate. But bear in mind that your home acts as collateral, putting it at risk in case of repayment defaults.

Pros:

• Potentially lower interest rates.

• Higher loan amounts.

• Tax deductions may be available.

Cons:

• Puts your home at risk.

• Longer application process.

• More strict credit requirements.

Boat business: buying a yacht through a limited company

Buying a boat through your business implies that the vessel is regarded as a business asset and is expected to be used for business-related purposes. Be aware that the tax authorities, also those abroad, are very keen on thoroughly checking those business models. Only consider such a model if you yacht is truly a business asset and part of the value chain. Financing the boat typically involves acquiring a business loan or lease, with lenders requiring proof that the company can afford the repayments. Once the purchase is completed, the associated costs, like maintenance, fuel, and insurance, are commonly treated as business expenses.

Pros:

1. Potentially tax-deductible expenses related to the boat

2. Possibility of a stronger borrowing position with lenders due to company assets

3. Separation of personal and business finances

Cons:

• More complex accounting and bookkeeping

• Higher insurance costs due to business classification

• Limited personal use without attracting fringe benefits tax (FBT)

Boat financing options in the UK: where to look?

First we´d suggest you talk to your local boat dealer. As mentioned before, buying a boat on finance unveils an abundant array of options. In the table below, we assembled a comparative analysis of significant boat financing UK entity types worth your consideration:

Calculate your boat financing budget right now: online and for free!

Our boat loan calculator tool and other tools are freely available online to help sketch out your financial roadmap. With a few quick inputs, this handy instrument can give you an instant preview of what your monthly commitments could amount to and the total interest accumulated over your chosen loan period.

You'll need to input a couple of things, namely the loan amount you're looking to secure, the down payment and the desired duration of the loan, either in years or months. With a click on the calculate button, you're given a glimpse of your possible monthly repayments.

Note: While a loan calculator provides a useful ballpark estimate, remember it may not include all costs for new boat financing, like taxes or fees, so view its results as an informative initial guide, not a final quote.

Loans for a sailing boat: the bottom line

In summary, financing a sailing yacht involves understanding the ins and outs of loan terms, exploring various payment options, and making well-informed decisions to ensure sustainable monetary planning. As you set out on this journey, remember that comprehending your obligations and assessing your financial capacity is critical to a successful purchase.

If you're considering buying a sailing boat and need more guidance, don't hesitate to contact us. Our expert team is here to support you and provide the necessary advice to simplify your purchase process.

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