It's that time of the year again, when many people are considering purchasing an RV. When I was a sales manager and finance manager for an RV dealership I would get asked lots of questions about financing RV's. I organized some of these questions and included them in the RV financing section of my book, "The RV Book". Here is an excerpt from my book on RV financing FAQ.
Will one RV lender offer better interest rates than another RV lender?
Interest rates change frequently. If the prime rate goes up RV finance rates will go up too. RV lenders send updated rate sheets to RV dealers whenever their finance rates change. RV specialty lenders watch each other closely and if one lender lowers rates the other lenders will generally follow suit. They will usually stay within a quarter to a half point of each other.
Are there other factors that will determine what interest rate I get?
Yes, there are several factors that will determine the rate you get.
1) It depends if the RV is new or used. A used RV (normally over 3 or 4 years old) will get a higher interest rate than a new RV.
2) Your down payment will affect your interest rate. If you finance the RV on a zero down program the interest rate will be higher.
3) The term of the loan will affect the interest rate. The shorter the term the higher the rate, the longer the term the lower the rate.
4) The amount financed will affect the interest rate. The lower the dollar amount the higher the rate, the higher the dollar amount the lower the rate.
5) Your credit history (credit rating or score) will affect the rate. The higher your credit score is the lower the interest rate will be.
Should I shop around for a better rate, or will the rate a dealer offers the best rate I can get?
You should be aware of what the current rates are for RV loans, and based on the criteria listed if you are getting the best possible rate you can get. If you think you qualify for a lower rate, by all means try securing a better rate elsewhere. There are several RV specialty lenders on the internet that would like your business and will offer competitive rates. Do not even let too many lenders run a credit check on you to try and get a lower rate. This can backfire so be selective about who, and how often your credit is being checked.
Can you explain more about financing an RV with no money down?
There are usually a couple of RV lenders that will offer no money down finance programs. These programs will have certain guidelines to qualify. The type of RV, dollar amount, term of the loan and your credit rating can all factor into these types of programs. The finance rate will usually be higher too.
What length of term can I expect to get on an RV loan?
The term of the loan will be based on the dollar amount financed and the age of the RV. Some RV lenders are offering 20 year loans on new RV's with advanced amounts over $ 100,000 and loans ranging from $ 25,000 to $ 99,000 can qualify for 15 year loans. Loan amounts between $ 10,000 and $ 25,000 may qualify for 10 to 12 years loan terms.
Why would anyone want to pay the interest on a 15 or 20 year loan?
Nobody wants to, but the largest advantage of a long term loan is you get a lower monthly payment. Financing $ 100,000 for 240 months at 7% interest would be $ 775 a month. The same loan for 120 months would be $ 1,161 a month. You save almost $ 400.00 a month. But keep in mind you will have little or no equity if you try to trade within the first several years.
Can I finance an RV with below average credit?
RV's are basically considered a luxury item, so the criteria to finance an RV are more stringent than it is to finance an automobile. There are lenders that will finance below average credit but interest rates will be higher.
How is the interest on an RV loan calculated?
The majority of RV loans from RV specialty lenders are simple interest fixed rate loans. What this means is you will only pay interest on the principle owed, and in most cases there is no penalty for paying the loan off early. If you choose to pay more than your required monthly payment you can shorten the term of the loan and save on interest.
Can I write the interest off on my income taxes?
Yes, a fully self contained RV is considered a 2nd home and the interest paid is deductible, if you are not already deducting the interest on a 2nd home. At the time of this writing an RV is considered a qualified residence if it is one of the two residences chosen by the taxpayer for purposes of deductibility. To qualify it must provide basic living accommodations; Meaning it has cooking, sleeping and bathroom facilities with fresh water and waste water holding tanks. Talk to your tax advisor about what is required to write the interest off on your RV.
Will I need a down payment and if so how much?
Down payments will vary slightly between RV lenders but 10 to 20% down, in the form of cash or a trade-in, is usually the range. There are programs that offer low down, or no down payment but this will usually increase the interest rate. Most banks want to see your good faith commitment to the loan.
Do I need to have insurance on the RV to get a loan?
Yes, insurance is required when you close on the loan. The bank will not loan the money until they have proof of insurance.
Should I finance the RV or pay cash?
It is my personal opinion that it makes more sense to finance your RV purchase. If you finance the RV you can maintain your personal financial status without liquidating any assets. You can also take advantage of writing off the interest on your income taxes if the RV qualifies.
These questions do not cover everything you need to know about financing an RV, but hopefully they will provide you with a good understanding on the subject and help you when it comes time to purchase your RV.
Copyright 2007 by Mark J. Polk owner of RV Education 101