Debt and Credit

4 Questions to Consider Before Financing a Boat or RV

4 Questions to Consider Before Financing a Boat or RV

A boat, motorhome or RV can open the door to all sorts of possibilities and new experiences. And while the idea of making memories might encourage you to jump right in, there’s a lot to consider. To make informed decisions about purchasing and financing, ask yourself the following questions.

1. Which type of boat or RV fits my needs?

“When I talk to somebody who’s buying a boat or RV, I ask them to think about how they want to use it. That is going to help determine the type of boat or RV to buy,” says Don Parkhurst, senior vice president of Marine & RV Finance at SunTrust Bank. There are many types of boats and RVs, but most generally fall into one of the following basic categories.

“The boat you choose should be based on what you enjoy—whether that’s fishing, cruising or water sports,” Parkhurst explains. “With RVs, it’s more about the size and whether you want it to be towable or something that’s motorized.”

If you’re not sure which boat or RV you want to buy, many lenders offer pre-approvals for financing up to a specific loan amount, which can help you shop with confidence.

2. What financing options exist and what additional costs should I plan for?

Your loan options will likely depend on the size of the boat or RV you are financing.

  • Small: Many lenders offer boat loans for boats that are less than 25’ long and RV loans for smaller RVs, either towable or motorized. Loan limits are generally under $100,000, and repayment terms are shorter. These loans may require collateral (such as the vessel or vehicle being financed), but some loans may be unsecured. The application process can be relatively simple, and many can be completed online.
  • Large: Marine loans or yacht loans are designed for larger vessels 25’ or longer. There are also motorhome and RV loans for financing larger, more expensive motorized vehicles. These loans offer higher loan limits and longer repayment terms, and they are typically secured by the vessel or vehicle you are financing. Applying for these loans could require more information, which is why it can be helpful to work with an experienced lending partner throughout the process.

“Sometimes a first-time buyer thinks that buying one of these luxury goods is like buying a car. However, it’s a very different process,” Parkhurst says. “Not all banks offer these types of recreation loans, as it takes a lot of specialized knowledge.” 

Outside of specialty financing options, some people choose to use a home equity line of credit (HELOC) to finance a big purchase like a boat or RV. HELOCs are secured by your home and can offer flexible repayment options.

As for additional costs related to your purchase, you will likely be required to make a minimum down payment of around 15 percent. Your lender can also help walk you through other costs to plan for outside of the down payment and the loan itself, including but not limited to:

  • Inspections
    • Marine inspections (called “surveys”) average $13 to $18 per foot
    • RV inspections average $150–$200 per inspection
  • U.S. Coast Guard documentation (approximately $200)
  • Potential freight charges or commission costs

3. What will lenders look at when evaluating a borrower?

When someone is applying for a marine or RV loan, “lenders look at liquidity, net worth and cash flow, which aren’t usually considered for auto loans,” Parkhurst explains. “The lending process is typically more complex, and your lender will ask for more information to determine your ability to afford the boat or RV.”

4. How much should I budget for maintenance and operating costs?

“Boats and RVs can be costly beyond the purchase price and financing. It’s more expensive than owning a car, and that can be a big shock for a new owner,” Parkhurst stresses.

With a boat, for example, you should consider costs for dockage, winterization, safety items (think life jackets and flares), maintenance, insurance and fuel. Plus, the larger the boat, the more complex and potentially expensive those costs can be. For RVs, you’ll also need to consider maintenance, insurance, fuel and utility costs.

A good rule of thumb: You can expect to pay roughly 10 percent of the original purchase price (including interest charges on the loan) in yearly ownership and maintenance fees. So, if you buy a $250,000 boat, for example, plan for at least $25,000 in annual maintenance and operating expenses.

So, think about what will work best for you and do your research. Once you’re confident in what you want to purchase, your financing options and budget, you should be able to hit the open water or open road with confidence.

This content does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.