What is an Annual Percentage Rate (APR)?
When you agree to a loan amount from a lender to finance an RV, you’ll be charged a fixed interest rate for the duration of the loan.
All lenders market interest rates as an Annual Percentage Rate (APR), which includes both the interest rate and all pre-paid finance fees included with the loan. If, for example, you borrowed $100,000 at a 7.74% interest rate, with a loan processing fee of $445 which is considered a pre-paid finance fee, the APR will reflect the total cost of credit which includes the total interest plus the processing fee.
Best rates for RV loans
How do you know if you’re getting a good APR when financing an RV? We break down what APR to expect for different RV loans and other factors that might determine the best APR you can expect and should hunt for.
A small increase in the APR can have a big effect on the total amount you pay. So why are some APR’s higher than others?
Multiple factors determine the APR you pay on your RV loan, which, all said and done, determines how much you pay for your RV in total. The APR can mean the difference in thousands of dollars spent or saved once you’ve finalized your purchase.
So how do you know if you’re getting a good APR? That depends on the loan type, loan length, total cost of the RV, the down payment, credit history, and more. Each of these affects what a lender will agree to. By knowing the influence of each, you can gauge the type of APR you should expect to pay.
What factors influence my interest rate (APR)?
When negotiating the terms of a loan, several factors are at play that affect your APR. Knowing where you fall on things like credit history or down payment amount will help you understand the type of APR lenders will likely offer you.
Loan duration
The longer the loan, the more risk the lender has, so the higher the interest rate. Longer loans might allow for a smaller month-to-month baseline payment, but the higher interest rate and longer loan means you pay more overall.
Credit history
Super prime and prime customers (a FICO score above 700), will receive the best interest rates. If you have a lower-tier credit history (a FICO score below 700), your interest rate is likely to be higher to offset the risk to the lender. Current interest rates for borrowers with good credit fall somewhere between 7.12% and 10.86%, and for borrowers with lower-tier credit, the interest goes up.
Down payment
Regardless of your APR, the more down payment you can put down, the less you’ll pay in interest. But a larger down payment also alleviates worry for lenders, who are likely to offer a discounted APR with a higher down payment.
Loan type
There are two main types of RV loans, secured and unsecured. The difference is that secured loans require collateral, often with the RV itself. Because the collateral lessens the risk for the lender, the interest is often far lower than an unsecured loan. But if your credit score is good, you can still find a reasonable interest rate for an unsecured loan.
Debt to income ratio
Your debt-to-income ratio is based on how much you make vs how much you owe, and it can affect your interest rate. Most RV lenders prefer to see a monthly debt to income of 45% or lower.
Loan to value ratio
Like automobiles, the value of an RV is dynamic. It changes the older it gets, the more miles it has been driven, and as newer models come out. How much you want to borrow compared to how much the RV is worth–the loan-to-value ratio–can affect your interest rate.
Can my rate change during the loan?
Most RV loans are fixed simple interest rate loans, meaning you’ll pay the same APR on your loan at the end as you would in the beginning. And because your overall loan amount goes down as you pay it off, the amount you pay in interest decreases as well.
Some RV loans use a variable or hybrid interest rate, like a 5/1 where the borrower pays a fixed rate for 60 months and then a variable rate for the remainder of the loan. This is a riskier situation for the borrower as variable rates are unpredictable.
What are the best rates for RV loans?
Multiple variables affect what you’ll pay for an interest rate, with your credit score ultimately contributing the most. Remember, with a good credit score you should be able to find an interest rate between 7.12% and 10.86%.
To see the cost of the loan, your credit score, and the duration of the loan can affect your rate, check out the loan rate table at the Good Sam Finance Center to see what a loan might look like for a used, new, or refinanced RV.