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Different Loans, Different Rates – A Comparison
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I have a friend who is thinking about buying a boat and he’s going to have to get himself a loan. That got me thinking about the different rates for various loans. Basically, my conclusion was that the collateral you put down dictates the general range your interest rate will be. Within that range, the better the credit score and shorter the payment period, the lower the rate you can expect. For the lender, it’s all about risk mitigation. A home is better than a car, so the rate will be lower. A 750 FICO score is better than a 650 FICO score, so the rate will be lower. At my particular credit union, there are loans for almost anything these days too like for a computer, a vacation, an RV, and motorcycles. I want to see how they all compare.
With homes there are different types of home loans (extension of credit in which the home is collateral) – typical mortgage, home equity line of credit (HELOCs), and home equity loans. There is the idea of a “home improvement loan” but most places just treat them as a HELOC (and you draw from that line of credit as your loan). According to Bankrate, this is what you would expect to pay as an interest rate:
| Loan Type | Listed Rate |
|---|---|
| 15 year fixed | 5.09% |
| 30 year fixed | 5.51% |
| 30K HELOC | 4.65% |
| 30K Home Equity | 7.25% |
How about cars? You’d used to expect the rates on cars to be much higher than on homes but auto loans are pretty low right now. Basically you split them up into two types: new and used. Obviously the new cars are better than a used car’s rates since the car is typically worth more, but in both cases the car is still used.
| Loan Type | Listed Rate |
|---|---|
| 3 Year New | 5.98% |
| 5 Year New | 6.32% |
| 3 Year Used | 6.86% |
Boats? They’re simple interest loans with no prepayment with rates that can go anywhere from 5.99% to 20%. These loans are also much harder to get. An option lots of people do is just take advantage of a lower HELOC interest rate and withdraw funds from there to pay for a boat.
What about all those random loans I was talking about before ? Here are some sample rates from my credit union, as of 3/17/05:
| Loan Type | Listed Rate |
|---|---|
| HELOC | 5.25% (v) |
| Motorcycles | 8.25% (v) |
| RV’s | 7.25% (v) |
| Boats | 8.25% (v) |
| Computer | 9.9% (f) |
| Vacation | 9.9% (f) |
- (v): Variable APR
- (f): Fixed APR
Home loans = cheap rates; Boat/Computer/Vacation loans = not so cheap rates. Finally, an option I didn’t even consider until I read some articles about loans, you can put it on your credit card! Buy a boat on plastic (that isn’t 0% for life) and you’ll be paying for it the rest of your life.
It looks like the best idea would be to buy a home (duh!), wait until you’ve built up some equity, and then use a HELOC to purchase that boat. Then again, remember the old adage, a boat is simply a hole you pour your money into! 
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Your rates for houses seem low. Possibly a 20% down payment is involved to get those rates…
Yes, a 20% downpayment is involved.