Multiple lending options, different RV types, wide price ranges, several loan types–financing an RV requires a lot of research into what’s possible and best for you. Deciding on an RV budget is just the start.
In recent years the increased popularity of RVs has further established these traveling-home hybrids as worthwhile financial and recreational investments. With the growth in RV rental markets and used RV sales, there’s good reason to have piqued interest in the possibility of owning an RV of your own.
So what do you need to know about loans and financing when considering the purchase of a new or used RV?
There are multiple types of RV loans and lengths, different types of lenders, all sorts of RV types, and the value of RVs fluctuate year over year. What’s more, you need to know what a fair Annual Percentage Rate (APR) is before agreeing to a loan. The need-to-know list can feel daunting.
Get started with the basics: Know the most common types of loans, familiarize yourself with the lending process, and learn red flags to watch for as you start your journey toward becoming an RV owner.
RV type
From Class A motorhomes that can cost hundreds of thousands of dollars to small, affordable travel trailers and truck campers that cost thousands, the price gap between the most expensive RVs and the most affordable is quite broad. And the RV’s type and cost will play a major role in deciding what loan to apply for.
Get started with an overview of From Class A motorhomes that can cost hundreds of thousands of dollars to small, affordable travel trailers and truck campers that cost thousands, the price gap between the most expensive RVs and the most affordable is quite broad. And the RV’s type and cost will play a major role in deciding what loan to apply for.
Get started with an overview of buying an RV. Or learn the difference between RV types.
Once you’ve identified the RV type(s) of interest, consider a few additional factors that will help determine the type of loan you should seek:
- How long you’re willing to pay for the loan (they can last as long as 240 months)
- How much of a down payment you are willing to pay
- What APR you expect to pay
- Where your FICO credit score ranks and other factors of creditworthiness.
RV Loan factors
When it comes to RV loans, lenders have a lot at stake. RVs are looked upon by lenders as luxury items. They can depreciate in value quickly, often carry a hefty price tag, and not all buyers understand the additional costs that go into owning an RV. Loan acceptance will depend on relieving the lender of anxieties they may have.
Before we begin to talk about different types of loans, get familiar with a few key concepts that will help you navigate some loan stipulations. Remember, the lender is after a safe loan.
Your RV will act as collateral. For secured loans that require collateral, the RV purchase itself will be used, meaning your RV could be repossessed if you fall behind on payments.
Down payments are important. RVs can depreciate in value as much as 30% upon purchase. To avoid owing more than your RV is worth, a down payment may vary significantly depending on the sale price of the RV.
Collateral + down payment = a lower APR. Give lenders a reason to lower your APR. That happens when they have collateral and you’ve put money down that reduces the loan-to-value ratio.
Lenders may require additional proof. It’s not a slight when lenders want to know your debt vs income ratio, employment history, or income. It could pay off to communicate you’re a trustworthy borrower.
Credit history matters–but it’s not always a dealbreaker. Your FICO credit score stands to help you if it’s good. But don’t count yourself out if it’s less than ideal.
When working with the Good Sam Finance Center, their goal is to provide you with the type of loan that makes the most sense for you, the lender, and the type of RV. That’s the good news: you aren’t pigeonholed into one type of loan. Instead, different types of loans can apply to different scenarios.
Secured or unsecured?
The two main types of RV loans are secured and unsecured.
A secured loan requires the RV as collateral from the borrower. This means that the lender has the legal right to repossess an RV should the borrower stop making payments on the loan. Secured loans are often used for RVs with model years less than 20 years as opposed older models, or higher mileage.
In addition to collateral, secured loans also often require you to put a down payment on the loan. Why all the securities? It comes back to the lender wanting to lower the risk of the loan.
The good news? With collateral and a down payment, lenders often offer a more reasonable APR and loan term on your loan, which could mean paying significantly less for your RV, all said and done. And in addition, you can deduct the interest of your secured loan from federal taxes each year. Check with your CPA.
Unsecured loans don’t require collateral, but they are used for different types of RV purchases. Unsecured loans are often used for used, older, or high-mileage RVs.
But unsecured loans can still provide substantial funds. Where’s the catch? With your credit history, income vs debt ratio, and income. Lenders still need assurance when providing an unsecured loan, and that comes from lower-dollar loans with proven borrowers at higher APRs and shorter loan terms.
Beyond the type of RV purchase, unsecured loans are far more flexible loans. Unsecured loans can be applied to more purchases than the RV itself. Upgrades, repairs, remodels, membership, and even vacation expenses–all of these can be paid for with funds from an unsecured loan. That’s because it’s based on your credit, not the collateral of the RV.
Loan term length
The next factor is your loan length–or how long you will be paying off the loan on your RV. Again, the depreciation in value of an RV is important to consider here. But, in general, loan lengths for RVs can be anywhere from 5 to 20 years long, with 15 years being the average.
The more you finance, the more options you have when it comes to term length. For example, with a secured loan, you can borrow more and can generally extend the length of your term, depending on other factors, of course. As a rule of thumb, lenders will typically extend loans greater than $50,000 up to 20 years which makes buying an RV more affordable with lower monthly payment.
Down payment
Most lenders require a down payment of 10% to 20% of the cash selling price. When negotiating a secured loan, the higher the down payment, the better chance you have of talking down the interest rate. Some lenders will even provide special financing with less than 10% down. Gauge those with a keen eye. How do they mitigate the risk on their end by accepting a lower down payment? More money now means less money over time.
Pre-approval
Getting pre-approved for a loan before shopping for an RV helps you mitigate the chances of spending more than you should. By working with a private or online lender, you know what your budget for an RV is, what your loan payments look like, and what the dealership decides to accept.
Getting pre-approved also sends a message to the seller that you are a serious buyer, which can improve your overall experience.
Who will be using the RV?
One other often-forgotten piece of the puzzle is how the RV will be used. More specifically, who will be using the RV.
If you plan to use the RV exclusively for personal, recreational usage, regular secured RV financing is for you. But if you plan to use the RV personally and rent it out to others, like with Good Sam RV Rentals, you should look into peer-to-peer, commercial financing.
Most folks don’t know you can obtain special financing for renting your RV. Good Sam Finance Center can lend on multiple RVs if you want to use them exclusively for rentals.
And there you have it. Knowing the basics of RV loans and financing can alleviate much of the stress that comes when you first consider purchasing an RV. Rest assured, the process is less trying than you might think when you understand the different options and processes.
Still have questions? Reach out to our team at the Good Sam Finance Center, and they will be glad to help tackle your questions and concerns when it comes to financing an RV or boat.