Buying a recreational vehicle is an enormous purchase, not unlike the purchase of a car or home. And just like buying a home or car, chances are you're going to need a little bit of financial help, either from the dealer or a bank, to make your dreams come true.
Navigating the complex world of loans and lending institutions can be daunting, especially if you don't have experience dealing with them. This blog walks you through the basic process of financing your first RV. Remember, though, there's no replacement for your lending intuition. If at any time during the financing process you feel confused, don't be afraid to ask questions or find someone to help you. Financing an RV is a large undertaking, and you should be comfortable and informed throughout the process.
Before You Begin Looking
If you are fully committed to buying an RV, the next step is to get prepared. Buying a recreational vehicle is more than simply picking out the unit you want. First, you need to check a few things with your credit to ensure the best possible outcome for this big purchase.
Step #1: Check your credit score and improve it, if possible.
A strong score will assure you a good interest rate on your loan, as well as help dictate how much you qualify for, the term length, and whether or not you even get one. If you check your credit score with one of the three major reporting agencies (Equifax, Experian, and the TransUnion) and find it to be lacking, try to pay off any outstanding debts to gain a few points if possible. A quick way to keep an eye on your score is with CreditKarma.com, which gives you instant access to your credit score without a charge.
Step #2: Save up for a down payment.
The bigger your down payment, the lower your monthly payments, and interest rate will be. Most down payments are usually between 10 and 20%.
Step #3: Set a budget.
Make sure that you can afford the entire cost of the RV over time, not just the loan payment – think about the big picture. RV's are a second home and can take a long time to pay off. Financing for large Class A's may be for a 15 to 20 year period, so think about the long-term before you start shopping.
Step #4: Look at the terms.
While some RV's are financed over a 15-year term, others are more like a car loan for a mere 60 months. Be sure to read the fine print before you agree to a payment plan.
Step #5: Find the best interest rate.
These will vary wildly from institution to institution. If you can sniff out an unusually low rate, you will save tens of thousands of dollars over the life of the loan.
HINT: A used RV that's less than five years old may be advantageous when looking for financing. Getting financed for a used RV is slightly different than for a new one. If you decide to go the used route, you have a better chance of being guaranteed financing, especially if it's less than five years old.
Apply for Only a Few Loans
Every time you apply for a loan, that financial institution runs a credit check, and every time this happens, you lose a few points from your score. A handful of credit checks won't matter, but any more than five or so will start to take its toll.
Another pre-purchase tip is to get pre-qualified for a loan at a lending institution like a bank, credit union or even an RV financing company. By setting up your payment structure in advance, you know exactly how much of an RV you can afford to buy. Don't be swayed into buying a more expensive recreational vehicle by the dealer's promotional monthly payments. Dealer rates tend to come with a high annual percentage rate or APR.
Look into Credit Unions
If you belong to a credit union, you might just find cheaper loans. You may also have better luck at a credit union should you decide to buy used.
Buy in the Fall or Spring
Springtime means new RV inventory, while the Fall is the perfect time to buy last year's recreational vehicles. Hands down, the non-Summer seasons are your best time to buy. Look for eager dealers, promotional discounts, inventory reduction sales and better loan rates. Don't try to buy your dream RV when the sales staff is busy. Wait till they can give you the time and focus you deserve.
Before Starting Payments
Once you've found the RV of your dreams and are hammering out the financial details, there are a few more things to consider in the process of paying off your loan.
Tip #1: Deduct Interest Payments.
If you've purchased a recreational vehicle with sleeping, cooking and bathroom facilities, it may be possible to deduct your interest payments. A large RV can be considered a second home and the payments are often considered mortgage payments. If this describes your situation, you'll want to consider a 15-year loan. Keep in mind this only applies to motorhomes. Towables like 5th wheels and travel trailers do not qualify for as a second home. Always check with your tax accountant for recommendations before your purchase.
Tip #2: Pay it Off Quickly.
Many RV buyers will choose a long-term loan in order to secure payments they know they can afford. This option doesn't take into account that the purchaser will end up paying much more than the vehicle is worth in interest payments. If you can afford to shorten the loan term or pay more than the minimum each month, try to do so. This style of loan is called a "hybrid" and can end up benefiting the buyer in the long run. The hybrid will not only lower your principal, but gives you a safety net of a lower payment should you be hit with a tough financial season.
Tip #3: Look At Your Options Online.
There are numerous online institutions eager to finance your RV. Here are just a few:
The financial world can be complicated and intimidating, especially if it's unfamiliar. Do your homework in advance and don't let the terminology confuse you. Know what to expect, what you want and what you can afford. Remember, be confident and if you don't understand something, ask to have it explained. Believe it or not, lenders are there to help you, not intimidate you, so borrow with confidence.