Inflation is on the rise and interest rates have spiked, so the question is - what are the best boat loan interest rates Canada currently has to offer? Whether you're eyeing a boat loan for a sleek yacht to leisurely cruise the coast or a rugged fishing boat for a weekend adventure, understanding the nuances of boat loans is crucial. Much like our boat loan calculator, which was built to factor in real interest rates, our marine blog is dedicated to bringin you factual information to make your boat loan search a breeze.
In this post, we dive into the basics of boat financing solutions and the current interest rates in 2024 to help you make an informed decision on owning your next maritime vehicle.
The Basics of Marine Financing in Canada
Getting the best boat loan in Canada isn't just about finding the funds; it's about finding flexible payment options while charting the top fixed rate based on your credit score and history.
Several factors can affect your loan rate including:
- Influence of Debt and Credit History: Your ability to manage debt in relation to your income will have a major impact on the boat loan rate offered. The existence of current recreational vehicle loans and the monthly payment history that goes along with them will be the primary subject for a lender to determine their risk. You may only qualify for a high risk boat loan if your history shows late payments, collections, or overextension of debt.
- Different Loan Types: Depending on the banks, credit unions or lenders that you decide to explore, there will be different rate options offered. For example, if you're looking at shorter loan terms for your boat loan, the rates drop on average compared to long term payment options. Unfortunately, while a shorter term might lower rates, the monthly payments might have you paying more than your finances allow. As long as your lender allows you to pay extra without penalty, financing for a longer term can lower your risk losing control of your finances.
- Book Value's Role in Financing: The book value of the boat directly influences the loan cap; the maximum amount a lender is willing to finance. It also affects the down payment requirement on your purchase. Essentially, lenders use the book valuation as a compass to navigate their risk, with banks typically setting stricter valuation criteria. This means a higher book value can lead to a higher loan cap and potentially lower down payment requirements, as it represents less risk to the lender.
- Marine Vehicle Style: For those drawn to the thrill of jet skis and other personal watercraft, be prepared to encounter slightly higher rates. The exciting use cases of these vessels often translate into a higher perceived risk for lenders, who adjust rates accordingly.
Many people have the false pretense that the rate on boats will be similar to what they pay for a vehicle loan. It is important to remember that your car loan will have lower rates than anything recreational as the risk on boat financing is much higher. For further reading on boat and watercraft loans, check out our definitive guide to marine financing in Canada and our guide to getting a bad credit boat loan in Canada.
Interest Rates for Boat Loans in Canada for 2024
Bank Personal Loan or Line of Credit:
- Interest Rate: Currently advertised to start at 7.2%* as of March 2024.
- Term Lengths: Typically shorter terms are offered. A line of credit is revolving, meaning that minimum payments will account for very little of the principal.
- Credit Requirements: Generally requires very good history to obtain the best rates.
- Flexibility: High; funds can be used for various purposes, not limited to boat loans.
- Rate Volatility: Low on a bank personal loan as typically the rate is locked in. Medium for a credit line as you'll likely be on a variable rate which fluctuates with Canada prime rates.
- Accessibility: Only available direct from major banks.
Bank Asset Loan:
- Interest Rate: Estimated interest rate will be similar bank rates to PLOC and personal boat loans.
- Term Lengths: Offers up to 20 years, with a locked-in rate, leading to a management loan payment.
- Credit Requirements: Requires very good history.
- Flexibility: Lower; specifically for boat purchases, with restrictions on book valuation. A down payment is a strong possibility.
- Rate Volatility: Low; fixed rates provide stability over the loan term.
- Accessibility: These marine loans are only available through major banks or a boat dealership. Some major banks may only operate through a dealer and not direct to customer.
Manufacturer & Big Box Dealership Lending:
- Interest Rate: Advertised rates are usually less than bank rates show, however they may be tied to shorter promotional terms or large down payments.
- Term Lengths: Up to 20 years, but the low interest rate may only apply for a short promotional period meaning that your loan payment may increase early on in your loan term.
- Credit Requirements: Can be more lenient due to promotional incentives. Many dealers will turn to private asset lenders for customers with troubled credit. In these cases, customers usually do not obtain the promotional rate.
- Flexibility: Medium; often restricted to specific new boat models and only offered by certain manufacturers.
- Rate Volatility: Medium; initial rates are promotional and will increase after a certain period.
- Accessibility: Only available from big box marine dealers who offer manufacturer financing.
Private Asset Lenders:
- Interest Rate: Competitive interest rates starting at 9.9%**, but can peak at around 29.9% for bad credit situations.
- Term Lengths: Can be up to 20 years, but often are restricted to under 10 years.
- Credit Requirements: More lenient, catering to a wider range of credit histories.
- Flexibility: High; most dealers with these lenders allow for purchases outside of traditional dealership inventories allowing you to decide the total price for your next boat. Private lenders typically have flexible payment options to fit your budget.
- Rate Volatility: Low; Fixed rates are offered but may be a bit higher and vary based on the customers history and debt load.
- Accessibility: Available through boat dealerships, marine brokers, online boat financing options and some direct channels for non-traditional purchases.
Key Factors to Consider When Choosing Your Boat Loan Option
In summary, to determine the best option for a boat loan for your specific situation, you may want to match the following factors to your specific budget:
Important Loan Factors to Consider:
Term Length: A longer term boat loan will lead to a lower monthly or bi-weekly payment and may be more affordable to pay. The drawback is that you will be paying interest for a longer period of time leading to more financing costs. Balancing your loan payment to what you can afford is key. Our boat loan calculator allows you to play with the rate, term and fees to give you a realistic look at what you might be in for.
Payment Frequency: While monthly payments are typically mentioned, many lenders now focus on matching the payments to your pay period on most boat loans. If financing monthly, you'll be looking to pay a simple 12 payments over the calendar year. A bi-weekly payment, on the other hand, has 26 payments over the course of a year meaning that you will end up having a month with one payment extra. It is important to account for this into your cost budget.
Boat Loan Amortization: Boat loans have a similar finance amortization model as your car or any other vehicle loan. With amortization in Canada, the bulk of your monthly payment at the start of your loan term will be paid toward interest.
Open Loans: An open loan allows you to make extra payments toward your purchse without getting charged a penalty. By doing so, you will dramatically be lowering the cost of interest. Financing through a lender or other business which offers open loans is crucial to ensure you're not going to pay extra costs on your purchase.
As you probably now realize, there are many options for boat loans in Canada, each with its benefits and deficits as far as interest rate, loan amount and loan term are concerned. From bank loans that demand thorough creditworthiness to manufacturer deals that may initially seem too good to be true, understanding the specifics of each option allows you to navigate towards the best deal for your dream boat. Our boat loan calculator includes a realistic look at what monthly payments shake out to, including fees and taxes. We encourage you to check that out as well as our other boat loan blog posts to ensure you're well prepared for your boat financing journey. Happy sailing!
Sources:
* CIBC current prime rate as of March 15, 2024
** Advertised rate from our partners at Revival Powersports. "You can get a boat or watercraft loan starting at 9.9% interest with the most reliable lenders in Canada. The rate ranges for a loan are typically between 9.9% and 11.9% with excellent credit, 12.9% to 16.9% with average credit, and at minimum 19.9% with bad credit."