How to finance a yacht, luxury boat or other pleasure craft

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Ask a Lender
August 10, 2017 | Updated September 26, 2017


Key Points

Financing a yacht, boat or pleasure craft

  • Boat loans are secured by the value of the boat.
  • A home equity line of credit could be used to buy a boat.
  • Your boat-loan interest may be tax-deductible.

Yachts and other luxury boats are symbols of the wealthy — and if you can purchase one out-of-pocket, by all means, do so. But for many people, the only way to purchase a yacht, or even a more affordable pleasure craft such as a sailboat, is by taking out a loan.

But for first-time boat buyers, that may be easier said than done. What kind of loan should you take out to buy a boat? What kind of down payment do you need? What are the tax ramifications? Consider this your guide to boat finance.

Boat loans

If you need a loan for a boat, your first thought is probably to look for a loan specifically designed to purchase a boat. Like a car loan, a boat loan is a type of secured loan — so called because the debt is backed by the value of the asset being bought, in this case, the boat.

That means if you default on the loan, the lender can repossess the boat and sell it to recoup its investment. Depending on whether the loan is recourse or non-recourse, the lender may not stop there. With a recourse loan, you are personally liable for the loan, and if the collateral doesn’t satisfy the debt (such as if the value of the boat has depreciated so that it’s now worth less than what you still owe), you’re on the hook for the difference. With non-recourse loans, the lender is entitled to the collateral, and nothing more — you are not held personally liable. Some states prohibit recourse loans.

Home equity to buy a boat

If you have a lot of equity in your home, it could be prudent to take out a home equity line of credit or home equity loan to purchase a boat. Because home equity financing is backed by the equity you own in your home, you may qualify for a lower interest rate than you could get with other forms of financing.

Just be aware that if you take out a home equity loan and you are later unable to make payments on it, you could be putting your home at risk.

Down payment

You’ll likely need a down payment to qualify for a boat loan. Lenders could require a down payment of between 10 and 20 percent, although you may be able to find dealers or manufacturers that offer zero-down financing. Zero-down financing, however, may come with higher interest rates, or only be available to borrowers with stellar credit ratings.

Using a broker

You may have availed yourself of the services of a real estate broker or agent to help you buy a house, but you may not be aware that there are also brokers who can help you buy a boat.

A broker can be especially helpful if you are purchasing your first boat and don’t know exactly what you’re looking for. The broker can help you narrow your options until you know exactly what kind of boat best suits your needs.

Once you’ve located a desirable boat, a broker can also leverage market knowledge to help you make a fair offer, and negotiate a good price with the sellers. They may also be able to steer you toward a good lender that offers boat financing.

A good resource for finding a reputable broker is the website of the Yacht Brokers Association of America.

Tax benefits

Under certain circumstances, a boat may be considered a second home — a designation that can save boat owners money come tax time.

A boat may be considered a second home if it has a galley (kitchen), an installed head (toilet) and a sleeping berth. If the boat qualifies as a second home and has been financed, the owner can deduct the interest paid on the boat from their taxes using the home mortgage interest deduction. The deduction is only valid for up to two homes, so if you’re already taking an interest deduction on two homes, you can’t take advantage of it for your boat.

New boat owners may also be able to take advantage of sales tax deductions. Boat owners who paid state sales taxes on a new or used boat purchase in the last year can deduct the cost of the sales taxes from their federal income taxes. Taxpayers must choose between deducting state sales tax or state income tax on their federal tax return, so it’s important to consider which deduction will have the greatest tax benefit.

To take advantage of the sales tax deduction, the sales tax on the boat must be at the same rate as the state’s general sales tax, and the tax return must be itemized. Speak with your tax advisor to talk about your specific situation.

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