Bob Hope once said that a bank is a place that will lend you money if you can prove that you don't need it. While that might have been true back in the late '80s, most financial institutions are somewhat wiser and, ultimately, more discerning about who they lend money to these days.

That is not to say that getting boat finance is difficult or that it should be avoided like a bad debt. On the contrary, just about every Australian owes money. It's not a bad thing if managed sensibly. Debt is a way to accrue assets and, in the case of boating, it can help you realise lifelong dreams.

Essentially, a boat loan is no different from a car loan. There are several way you can borrow money: - low-interest (well-secured) loans, short-term loans, long-term loans as well as financing options such as leasing, hire purchase and refinance. Most financial institutions - whether banks, building societies or brokers representing themselves or acting through a boat dealer - offer these options.

Tailored loans
Some loans more tax effective than others, some are designed to be less burdensome, yet others might be shorter term and more cost effective if you have a good income stream. As with most things in life, there is a loan to suit most people. Despite these being tailored to individual needs and circumstances, all financial institutions will ask similar questions to ascertain your credit rating, level of debt, and income.

Applying for a loan
The way you answer a loan application will determine how much money you can borrow and what interest rate and term will apply to that money. Make sure you are perfectly honest with the lender. After all, the only one you will be fooling if you find yourself over your head is yourself.

Pre-approval
Getting pre-approval before you go shopping for a boat is a good idea. Having money at your disposal gives you bargaining power on the showroom floor. Pre-approval is like going shopping with the cash in your pocket. In you are looking for a second-hand boat, it might mean you don't get gazumped by another prospective buyer.

Checklist for credit status
When you apply for a boat loan, all financial institutions will consider things such as: have you ever filed for bankruptcy, do you own a home, how much is your current income, how long have you been employed at your current job, how long have you lived at your current address, do you have a credit card, what is your net worth, and so on.

The financial officer will then apply some maths to ascertain your credit status, determine the security over the loan, your current debt level, your income, and your ability to repay the debt. From this he or she will determine how much money you can borrow. Many online financial websites have computer calculators which can be used to determine your repayments well before you apply for a loan.

How much can I borrow?
Indeed, the process of buying a boat should begin well before you sit down with a financier. You can do the sums yourself to determine your monthly budget. Simply deduct your expenses from your after-tax earnings. As a rule, most institutions will lend up to one third of your net income per annum.

The interest rate may vary by several per cent depending on whether you are a high- or low-risk borrower. By all means shop around interest rates differ at credit unions, banks, and finance companies. The more lax they are generally the higher the interest rate will be.

Operating expenses
Another thing to consider are the operating expenses of your boat. Large cruisers require at least annual slipping and antifouling, mooring or marina space, engine services, and sometimes large amounts of fuel. If there is an economic downturn an you are forced to hold your boat for a better price, the cost of maintenance and operating expenses can be crippling.

A small trailerboat, on the other hand, may cost just a few hundred dollars to keep going for a year. Just remember the golden rule: never buy a boat which stretches you financially, either in terms of running expenses or repayments. The joy of boating is soon forgotten if your are underwater financially. Just ask Alan Bond.

Approval rating
Mark O'Donaghue from specialist boat-finance company Finlease, a finance broker which sources a competitive facility for each client, says more people are treating boat finance a lot more seriously these days. In the early 90s the boat industry took a real bath, he says, and an enormous amount of financiers were burnt on their exposure to recreational boating.

Boats are one of the first things to go when a recession hits. In the early 90s, clients retracted and the net result was that there were quite a lot of repossessions. But things have changed. While you may find some financiers are still reticent to finance boats without real-estate security, generally most are far more relaxed.

At Finlease, for example, approval ratings for boat loans are as high as 90 per cent without the need for real-estate as security. In fact, most new boats are 100 per cent financed. An enormous amount of used boats are also financed up to 100 per cent. However, commonly the financier would ask for a second-hand boat to be formally surveyed and valued as a condition of approval, which is usually not seen as an obstacle for most buyers because they, too, want the same peace of mind as the lender.

And another thing: as loans for pleasure boats are arranged as a consumer credit act transaction, the borrower is protected by legislation. There are also very low early-termination penalties hundreds of dollars as opposed the thousands of dollars should you have to sell.

Period of loan
Most private boats are financed over five years, either fully paid for or with a balloon payment at the end of up to 40 per cent. Interest rates are fixed for the term at around 9-10 per cent at the moment. Financing a boat over a shorter term can incur less interest. A redraw facility, home loan or property-secured debt may save a buyer as much as 1.5 per cent in interest per year, but they you will be pledging your home to secure a boat.

O'Donaghue makes the point that whether the client believes it or not they have usually unconsciously approved their own transaction. In other words, they know what discretionary income they have available each month to service a debt. They have also given due thought to their ability to repay any shortfall should they have to sell the boat in an emergency for a lesser figure and repay the financier.

Investment opportunities
Finlease deals with both pleasure and charterboat loans. It is interesting to note there has been a significant increase in the number of charterboats purchased by individuals in recent times. This is because of negative-gearing benefits, helped by the GST, which allow for big tax savings while maintaining an ability to go boating.

The tax advantages of commercial hire purchase for high-income earners have helped the charterboat industry forge ahead in Australia. Amazingly, charterboat ownership can cost 80 percent less than private-boat ownership in an after-tax situation.

Then again, the average price of charterboat is $250,000-$300,000. They are usually yachts, always in full charter survey, and regarded as true working boats operating from established charter businesses with provision for private use.

Put in simply terms, boat finance for the appropriate borrower is as simple as arranging a car loan. Next time You're caught in a traffic snarl look around you and wonder how many people actually own the cars they are driving. The situation on the water is no different - or at least it shouldn't be.

David Lockwood