This is perhaps the best time in the history of the RV industry to purchase an RV. You can get a great deal on an RV right now, but the problem is since the banking industry and bailout crisis RV lending is more difficult to come by. Several banks and key RV lenders departed from the RV industry completely while others are waiting and watching to see what will happen with the government bailout funds.
RV dealers and RV manufacturers alike are motivated to make a deal and move inventory from their lots. And interest rates are continuing to fall. If you have good credit, your job is not compromised by the current recession, and you are considering purchasing an RV now would be the time to do it.
When I was a sales and finance manager for an RV dealership I got asked lots of questions about financing RV’s. I organized some of those FAQ to assist you with questions you might have about financing your next RV. Before I go any further I want to make it clear that some of this information may have changed due to how banks are conducting business since the banking industry collapse, and because it has been over a decade since I worked for an RV dealership. With that said here goes.
Will one RV lender offer better interest rates than another RV lender?
Interest rates change frequently. If the prime rate goes up or down, RV finance rates will follow respectively. 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 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. (zero down programs may not exist anymore)
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 be 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 determine 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 that would like your business and will offer competitive rates. Do not however let too many lenders run a credit check to try and get a lower rate. This can backfire so be selective about who, and how often your credit is being checked.
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 offer 20 year loans on new RV’s with financed amounts over $100,000 and loans ranging from $25,000 to $99,000 normally qualify for 15 year loans. Loan amounts between $10,000 and $25,000 may qualify for 10 to 12 years loan terms.
Why would anybody want to pay the interest on a 15 or 20 year loan?
Nobody wants to, but the biggest advantage of a long term loan is you get a lower monthly payment. For example, 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?
Subprime lending is what got us where we are today! RV’s are considered a luxury item, so the criteria to finance an RV are more stringent than it is to finance an automobile, especially since the banking industry meltdown.
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 I wrote this 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 vary between lenders but 10 to 20% down, in the form of cash or a trade-in, is usually the range. There used to be programs that offered low down, or no down payment but these programs 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 don’t 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. Go here for some more RV Buying Resources
Happy Camping
Mark Polk
Keith
This quote from this article: 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.
Cracks me up. Do not listen to some RV person, as an accountant I can tell you if you can afford it buy your purchase…any purchase right out. To tell people it is better to pay thousands of dollars in interest payments to “maintain your personal financial status” is not only irresponsible but nonsensical. The current housing situation shows us this way of thinking as we see with Mr. Polk is outdated and gov’t propoganda which has hurt this country and economy in tremendous ways we are all feeling. Mr. Polk reminds me of a Realtor with this quote.
As for the tax writeoff, there are many great articles that will explain to people how little the Tax writeoff on interest payments truly is. Please keep your articles to RV’s and not finance. But of course you did state it was your opinion…and it certainly shows that there was no factual basis for it.
Carol
You are dead on right about shopping around. The more time spent finding the best deal (APR) you can get.
It’s always worth seeing what kind of APR deal you can get approved for directly from the bank instead of opting for the dealership financing.
Carol @ http://www.lazerloan.com/
Jr
While I have found it hard, to get credit on a new RV, the used RV market had payed off for me. There are many used RV out there at a reasonable price, and that have alot of extras, that had been updated during previous ownership…
I had also once read, it was good to purchase a used RV as so many of the bugs can be worked out, over the first couple years…
Bob
Very informative. Thank you for creating it. With the present economy taking on more debt should be considered carefully. Please make sure that you can afford the monthly cost of a RV. Do not forget you have insurance (total replacement), repair insurance, upkeep, title, licensing, and other costs to figure before you agree to the $1000 a month RV loan. Make sure you have at least 6 months instant cash available for emergency situations. Is your job 100% secure? How long can you still pay your bills if you do not have a job?
The idea that you can deduct interest payments from your income on your tax return needs to be carefully considered. First, do you itemize your deductions on your income tax return? If you do not itemize, then you can not deduct. Even if you can deduct the interest, it comes off you income not from your taxes. Do the calculation estimate before you finance and see just what difference it really makes in your taxes and your actual pocket money. Create a cash flow budget for the future years that you will be paying the loan back. Can you really afford the RV and afford using the RV?
I do not mean to be so pessimistic, but we must look at the total financial picture. Too many people have gotten too far in debt and have purchased too much on credit. This has led to the housing difficulties and some of the bankruptcies. Realize the depreciation as soon as you sign on the dotted line. The RV is worth 10% to 20% less as soon as you sign.
Erin
This is a very interesting article with a lot of helpful tips for those looking to buy an RV. Thank you, Mark, for posting it and bringing attention to the fact that this is a great time to purchase an RV. For interested buyers in California, the 21st Annual Manufacturers’ RV and Boat Show will be coming back to the Alameda Fairgrounds in Pleasanton from May 15-24. To get more information before the show starts go to http://rvshow.net/. The organizers are keenly aware of everyone’s need to pinch their pennies right now, so they’re doing everything in their power to provide the best deals possible. Hope to see you there!
Al Paschen
We have found that availability of RV financing through national lenders is somewhat limited right now. However, our dealership has had good success arranging financing with local and community lenders in our area. We are in NW Indiana and have had ongoing relationships with a number of local lenders for years. They have money to lend and like to make RV loans.. Community lenders usually like to limit their lending to a geographical area near their bank or one of their branches. But, in our case, that area extends for a radius of a few hundred miles which includes most of our customers.
Knowing this won’t help a potential buyer unless they have a nearby dealer that has established a business relationship with local lenders. Some have, some have not. It’s worth checking because there are bargains to be had, as Mark suggested.
Another point worth mentioning is that many retired or near retired RV’ers have seen their investment accounts shrink over the last months. There goes the RV dream! It is not the best time to cash in stock to pay for a RV. But it is a shame to waste precious years without the new RV, waiting for the stock market to go back up. A good solution to the problem is financing the purchase now and then paying off the loan when the investment account is healthy again. Local lenders can make that happen.
Mark Polk
Bill,
Just be sure and ask about any penalities for early pay-off. I have never experienced any on simple interest fixed rate RV loans in the past.
Bill Andersen
Writing off the interest expense often overllooks the fact that you are paying a lot of money on interest: all you’re doing is not paying tax on the money you spent on interest.
Since dealers usually get a fee for selling a loan, I’m considering trying to get a good deal on a motor home, a good deal on financing it, and then paying it off as quickly as I can. So, I have to make sure there’s no penalty for early pay-off.
Am I overlooking something?
john Christman
Mark,
Very well written article. You covered all the basics and then some. I kept thinking there’s got to be something that I could add, but found nothing except maybe to mention that getting a loan from a Dealer may be easier, but it comes with a price-tag. When I financed my latest (last) RV, the dealer offered me his lowest rate of 7.50% and from an internet (very well respected) broker–who incidentally sold my contract to the same bank the dealer was using (name withheld for obvious reasons) they gave me 6.125%. So this told me that for the “easier” processing of the loan, the dealer was getting quite a sizable kickback.