What is the Difference between a Boat Loan, a Car Loan and a Mortgage?

A boat loan, a car loan and a mortgage are all secured loans.  The collateral for each of these is the asset being purchased with the loan.

What is the Difference between a Boat Loan, a Car Loan and a Mortgage?

  • Necessity vs. Luxury

A car loan and a mortgage are taken out of necessity, as one needs a place to live and a means of commuting.  A boat loan on the other hand is taken for purchasing a boat which is an item of luxury.

  • Tenure of Loans

The tenure of a car loan is around three years.  The repayment period for a boat loan is spread over 12 to 15 years.  A mortgage loan has the longest tenure of around 20 to 30 years.

  • Rates of Interest

Since the boat is a luxury item, in times of financial difficulty, the borrower may first default on the boat loan payment.  If things are still tough, he may miss out on the car loan payments.  As a last resort, he may even skip the mortgage payments.  Accordingly, the rate of interest is highest for a boat loan and lowest for a mortgage.

  • Asset Valuation

The value of a car and a boat start diminishing immediately after purchase.  In contrast, the value of a house generally appreciates with time.  These factors are kept in mind by lenders when fixing the terms of the loan.

  • Risk

Since the number of mortgage and car loans taken is quite high, the risk of the lenders is less as it is spread over.  In comparison, fewer boat loans are taken and hence there is a greater risk to lenders.

  • Co-Signers

One can have co-signers when taking a car loan or a mortgage.  Boat loans generally do not have co- signers and have to be taken individually.

  • Tax Deductions

Interest on a mortgage loan is generally tax deductible.  If a boat has a kitchen and an area for sleeping, then it is considered a home and the interest on the boat loan would be tax deductible.  However, car loan interest is not tax exempt.