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Purchasing a boat can be one of the best decisions that an individual makes. In many cases, however, outside financing is necessary. Potential borrowers should consider whether to apply for loans through banks, dealerships or service companies. They would also benefit from examining their credit reports, debt-to-income ratios, the amounts they would be willing to spend on boat payments and the lengths of time they would be willing to devote to paying back their loans.

Most individuals who choose to move forward with the process of financing already know that they can afford a boat, which is a non-essential item, unlike a home, says Jim Coburn, president of the National Marine Bankers Association and first vice president of Flagstar Bank. In a sense, making the decision to purchase a vessel is a pre-qualifying process.

There are three ways to secure financing: calling a bank and speaking with someone in the consumer loan department to obtain a direct loan; obtaining an indirect loan from a dealership by working with a business manager; or searching through the Yellow Pages, at a boat show or on the Internet to find a marine service company.

In the first scenario, an interested individual proceeds to a bank. The lending institution then runs and examines a credit report on the finances of the potential buyer. If the results are positive, then a loan closing will commence. In this case, the bank will verify the customer’s driver’s license or other, government-issued piece of identification, and then will provide the boater with funds to pay for the vessel.

The second financing option involves working with a business manager from a dealership, who maintains relationships with banks and who can contact them on behalf of the mariner. Coburn calls this one-stop shopping. Here, the buyer completes an application with the help of the business manager, signs it and then sends the application to a bank, credit union or savings-and-loan institution to obtain private financing.

The third alternative involves contacting marine service companies; these businesses act similarly to business managers at dealerships. Like the aforementioned dealers, service companies have contacts at various banks. Marine service companies use these connections to provide customers with quotes that include interest rates favoring the borrowers. Then, if customers choose to move ahead with purchases financed by the service companies, the companies will submit the applications for the loans to banks, credit unions or savings-and-loan corporations.

It is slightly easier to obtain financing for houses than for boats. “Boaters need more documentation. You must prove a down payment has been made,” explains James Barrõn, senior vice president of administration for Essex Credit Corporation, a lending institution. If a potential lender works for a corporation, they will need to provide a current pay stub and the previous year’s W-2 form. If self-employed, Essex would need two years of tax returns, both business and personal, if applicable.

In addition, a strong candidate must have a solid credit profile. Generally, boaters need to have scores at or above 700 under current market conditions. If credit histories show that borrowers have neglected to fulfill their financial obligations multiple times, then these customers will be unlikely to obtain new marine loans, says Chris Hungerink, president of Coastal Financial Corp. If, however, they have a low number of such incidences, then they are likely to win approvals.

Although lending institutions look for potential customers’ historical willingness to pay loans back, they do not require previous financing. This stems from the fact that, at some point, every borrower will need to take out an initial loan, requiring a willingness on the part of a lender to take a chance on an unknown.