Marine lenders are a lonely breed these days.

Despite what every American knows about short-term interest rates having declined over the past eight months, courtesy of the Federal Reserve, prospective borrowers and those thinking about refinancing established boat loans just can't seem to take the plunge.

The trend reflects a market in which boats sales dropped sharply in 2007, and are expected to continue to fall this year. Another factor may be long term interest rates, where recent increases will increase borrowing costs on items such as boats.

Lenders offering "zero down" loans and other creative financing as late as last fall have returned to traditional lending, and 15 percent down is now a common requirement. Until last fall, some pretty creative offerings – like zero-down loans, approvals without Coast Guard documentation and even loans to boaters with poor credit histories – kept transactions going.

But now, as lending practices return to the old standards and with credit availability tightened, borrowers are no longer being enticed with special deals and the blaze of boat lending has slowed to a flicker.

The result is that buyers with solid credit can still find reasonable financing – and very attractive refinancing deals – but they can also expect increased scrutiny and a requirement of 15 percent down or more.

TODAY'S MARKET

Consumer loan rates are determined by many factors and can vary sharply, because each lender starts with different needs. The lender begins pricing at a benchmark rate that reflects the average life of a boat loan, which is about four years, according to the National Marine Bankers Association. The benchmarks used could be a five-year Treasury note rate, a comparable LIBOR (London Interbank Offered Rate) or shorter money market rates for variable-rate loans. From that base, the lender will add overhead costs and build in a profit as compensation for the risk of making the loan.

Marine interest rates have traditionally been relatively reasonable, because of healthy competition among lenders and collateral (the boat) that holds up better than some other products. Boat buyers also tend to have higher – meaning less risky – credit scores.

In today's market, rates are hovering within historic averages. For larger loans ($25,000 and up), buyers can expect fixed rates in the 7 percent range. For smaller loans (under $25,000), rates are between 8.5 and 9 percent. These rates would be offered on new boats to those with very good or better credit scores, meaning 700 and up. Loan terms in today's market are running up to 10 years for smaller loans and 15 to 20 years on larger ones.

They also reflect a growing request for more money down. In the ramp-up to tightened credit, the "zero down" loan was a major culprit in the subprime lending collapse. Nothing makes it easier for borrowers to walk away from loans in which they have no equity – or, worse, negative equity – in real estate or other real property. Lenders have been painfully reminded of this over the past year, and buyers can expect a requirement of 15 percent down or more.

Some lenders say boat loan rates may head lower in coming months, but they obviously won't speculate when that will happen or by how much. If rates do come down, is waiting worth the gamble?

Probably not, if the only goal is to lower monthly payments. With the longer terms associated with boat loans, the change in monthly payment is minimally cushioned. Here's an example of the monthly payments on a $50,000 fixed-rate loan, with different rates and terms. Note that in no case does the monthly payment change by more than $35.

REFINANCING

Boat owners who financed their purchase prior to last September and back to 2005 – a period when the Fed was raising rates or holding them steady – should compare the rates and terms of their current loan with those being offered today.

Most lenders do not charge fees to pay off fixed-rate boat loans early or to process a new loan, so there is often no out-of-pocket expense to refinance. (One exception is that lenders sometimes require an updated appraisal or survey to verify the boat is still in good shape.)

Use the rule of thumb for on-land real estate: anytime interest rates fall by 2 percent or more and the owner intends to keep the property for several years, it is advisable to refinance.

Unlike in real estate, there are often no consumer expenses associated with refinancing a boat loan, and now may be a good time to do so.

For borrowers with loans that have variable rates or "balloons" that require payoff, refinancing to a fixed-rate loan may make sense. If the loan has a prepayment penalty, borrowers will likely find it better to wait until the end of the term.

SHOPPING

When considering taking out a new loan or refinancing, compare offerings from several lenders, including your current lender, if the service has been good. Banks, financial institutions and brokers/dealers all participate in financing. In the later case, the broker/dealer generally acts as an agent for a lender that will fund the deal and actually hold the loan. National organizations like BoatU.S., Sea Tow and others also provide financing.

Make sure that the lenders you speak with are active in marine financing, and therefore understand the requirements and the value of the underlying collateral (the boat). There is a good chance that the interest rates you find will be similar, often varying by a few tenths of a percentage point. Be certain that the loans being compared have the same terms and conditions.

When applying for a boat loan, you will be required to share personal and financial information. The more you plan to borrow or the more complex the transaction, the more information the lender will request, including copies of your recent tax returns. Obviously, before you share any personal information, confirm that you are dealing with a legitimate organization.

For those new to the process, there are many resources available online from organizations like the National Marine Bankers Association and the National Marine Manufacturers Association, which cover subjects such as the lending process, tax consequences, registration, titling, documentation and other aspects of financing and purchase.