Buying With Credit vs. Boat Loan: Which is Better

Two possible routes you could take to finance your boat purchase could be either buying with credit, or applying for a boat loan. To decide which is better, you will need to look at the traits of each financing option, and decide which fits your situation better.

Using a Home Equity Line of Credit

If you have invested time and money in your home, and have built up a good deal of home equity, you may want to consider a Home Equity Line of Credit, or HELCO. A HELCO is a loan using your home's value as collateral, but works like a credit card - you are extended a line of credit against the value of your home, and provided you maintain your monthly payments, you can borrow from that line of credit as often as you like, so long as there is still credit available.

Some borrowers apply for a HELCO with a greater line of credit than the actual cost of their boat, and use the excess line of credit to pay for their monthly boat expenses, such as docking fees, maintenance, or fuel. Like traditional home equity loans, HELCOS usually have lower repayment terms and lower interest rates, and you can deduct the interest on your HELCO payments on your income taxes.

When Not to Use a HELCO

HELCOs have one serious disadvantage - if you move, you will need to pay off the remaining balance of your HELCO in full. This could lead to a very large payment to your lender if it has only been a few years since you applied for your HELCO. Therefore, a HELCO may not be the best option if you plan on selling your home within the next few years.

Using a Boat Loan

Boat loans are offered through various lenders. As with other loans, such as an auto loan or a home loan, you borrow a sum of money from the lender and then make payments back to the lender over the course of several years until the loan has been repaid. Lenders who offer specialized boat loans often have a better understanding of the specific financial needs involved with boat ownership, and may also be able to extend a loan that includes "perks," such as a mechanical warranty on your new boat. Many lenders offer boat loans, so you also have the advantage of checking many lenders' quotes so you can get the best possible offer.

Disadvantages to a Boat Loan

Most banks consider boat loans to be a form of luxury loan. Usually, this means that their eligibility requirements can be stricter than with other loans - you may need a better credit history than with a home loan, or a better debt-to-income ratio. A bank may set a limit on the amount of money you can borrow for your boat loan. If you already have a number of other expenses, a lender may decide a boat loan would be too much of a financial risk for you and may reject your boat loan application. Also, unlike with a HELCO, interest payments on your boat loan are not tax-deductible.


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