Boat loans are similar to auto loans. They serve one chief purpose: allowing a customer to purchase a boat they would not otherwise be able to afford by borrowing money from a lender, often one that is working with the dealer. However, boats are not the same type of vehicle as cars. They cover a wide range of sizes and qualities and can be designed for a variety of different purposes, from fishing or yachting. This can give boat loan interest rates their own, unique characteristics.
Rates
Providing the average interest rate of any loan can be difficult, because interest rates are constantly changing according to the economy, government regulation and the culture surrounding the debt. A single number is a highly unreliable method of guessing the boat loan interest rate. But, in general, boat loan rates tend to be higher than mortgage rates but lower than auto loans. Since boats last longer than cars, lenders do not require the same high return. A common 2011 annual percentage rate was 7.5 percent, which makes the actual rate slightly lower.
Credit
Boat loans are also decided in large part by credit, the other major factor when creating the loan. Someone with good credit may be able to get the average rate of around 7 percent, or possibly even a better rate leaning toward 6 percent. But someone who has a damaged credit history with signs of many debts or debts that were paid late may have to settle for much higher rates as lenders alter them to account for risk.
Fixed and Variable
Boat loan interest rates can also be either fixed or variable, which can make it difficult to decide the long-term loan rate. A fixed rate stays the same throughout the life of the loan, and the schedule can be plotted out at a moment's notice. A variable rate, on the other hand, depends on an index and can be altered by the lender to account for market changes, which means the rate tends to go up over the life of the loan, reaching a higher number after the first several years.
Terms
The length of the boat loan is just as important as the rate, since it determines how often the interest rate will be applied. Boat loans tend to last about 10 to 12 years. The longer the term, the lower the interest rate will be, because the lender knows more profit will be gained from the greater number of payments. For a shorter term of only a few years, the rate will be higher to make up this profit, although the borrower still tends to save money with a shorter term.
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