A boat owner who had taken a loan for purchasing the boat may still be making his loan payments. This would take a long time as the average boat loan term ranges from 15 to 20 years. As the boat gets older, he may want to make some changes to upgrade the boat. In such a situation he can opt for an equity loan “cash out” on a boat loan.
The meaning of this term can be explained with an example. Say a boat owner has $20,000 yet to be paid on his boat loan. Now, he wants to upgrade his boat. So he chooses to take an equity loan on his boat. Assume that the value of his boat now is $50,000. The current lender’s lien on the boat would be to the extent of $20,000. So the owner’s equity in the boat is $30,000 ($50,000 - $20,000).
The equity loan lender maybe willing to give him an equity loan of $25,000. He can use $10,000 to repay the earlier loan and use the remaining cash that is, $15,000 for boat up gradation.
Another method would be to take an equity loan on the boat only to the extent of amount required for upgradation that is $15,000.