How to Finance an RV — What to Know About RV Loans | News
Owning an RV is a dream for many people.
Maybe you want to travel the country without having to worry about booking accommodation. Or go camping without giving up all the comforts of home.
Maybe you feel like downsizing and adopting a more mobile lifestyle, a way of life where you’re not tied down by a mortgage or lease.
A recreational vehicle gives you the freedom to explore. But this dream also has a price.
Buying an RV can cost you between $35,000 and $300,000, according to Cruise America. That’s why many buyers choose to finance their purchase with an RV loan.
What is an RV loan?
An RV loan finances the cost of purchasing a recreational vehicle. When you sign an RV loan, you agree to repay the lender over time and with interest. The terms are generally longer than auto loans and they carry higher interest rates.
Because RVs can cost hundreds of thousands of dollars, many potential owners use RV loans to make their purchase.
RV loans are not the same as a typical car loan you might apply for if you were buying a new car. A recreational vehicle is often considered a luxury purchase. According to Camper Report, RV loan interest rates tend to be between 4% and 6%, but factors such as purchase price, age of the vehicle, your credit score and length of your loan may cause you to have a higher or higher rate. lower interest rate.
Your RV loan term will likely be longer than your average car purchase, so you’ll have more time to pay off the loan. While you can get a two- to five-year loan, you might qualify for a 20-year RV loan with a six-figure purchase price. In this case, your loan will look more like a mortgage than an average car loan.
An RV loan with longer loan terms means you’ll have lower monthly payments. However, you will end up paying more interest over time. If you can handle the higher monthly payments, you’ll save money with a shorter loan.
RV financing options
If you’re looking to finance an RV, some of the most popular options are getting financing through your RV dealership or getting an RV loan from a bank, credit union, or from an online lender. For small RV purchases, you may be able to use a personal loan.
RV Dealer Loan
If you are buying your RV from a dealership rather than an individual, you will likely be offered financing through the dealership’s in-house lender or financial partners.
While this is a convenient way to access financing, you may not find the best deal by comparing quotes from multiple lenders.
However, the RV dealer might be better able to negotiate the purchase price with you or add extras, such as discounts on future maintenance work.
RV lending through banks, credit unions, or online lenders
Another option is to get an RV loan from a bank, credit union, or online lender. You can choose a financial institution with which you already have an account, but you don’t have to.
Getting quotes from multiple banks, credit unions, or online lenders will help you find the best deal. Just keep your loan purchases within a two-week window so your credit score isn’t affected by multiple credit inquiries. Or you can use an online lending marketplace, like Lending Tree, to compare rates from different lenders.
Getting pre-approved for an RV loan before shopping shows you’re a serious buyer. You will also have more bargaining power for an RV dealership to offer you better financing.
Unsecured personal loan
If you’re making a small RV purchase — for example, buying a used trailer for less than $10,000 — you might consider taking out a personal loan.
Some lenders for RV loans have a minimum threshold to take out a loan. If your purchase price falls below this amount, applying for a personal loan might be the best solution for you.
Unlike RV loans that you would get from dealerships, banks, credit unions, or online lenders, a personal loan is an unsecured loan, meaning you don’t post any collateral to take out the loan. Most other RV loans are secured loans, with the RV itself being the collateral.
If you were to default on a secured loan, the lender could repossess your RV. If you fail to repay a personal loan, your lender will not be able to repossess your RV. However, they could sue you for defaulting on your loan.
Unsecured loans often have higher interest rates than other RV loans, so expect higher monthly payments with personal loans. However, you don’t have to worry about a down payment like you would with a secured RV loan.
5 Steps to Getting an RV Loan
Now that you know how RV loans work and the different financing options, these steps will show you how to finance an RV.
1. Determine a budget for your RV purchase
Whether your RV is a luxury purchase or you plan to use it as your primary residence, you need to make sure it’s something you can afford.
How much money do you have each month after paying all your bills, making payments on existing debt, and covering recurring expenses like groceries and gas?
Note that your financial obligations for your RV will go beyond your loan repayments. You will also need to factor in sales tax, vehicle license fees, RV insurance, maintenance and repair costs, fuel for travel, and parking or storage costs.
Once you have an idea of what you can afford on a monthly basis, you can narrow down your buying options to something that fits your budget.
2. Check your credit
Your credit score will determine if you qualify for a loan and what the interest rate will be to pay off your RV loan. The higher your credit score, the better you will be able to get an RV loan with a lower interest rate.
Ideally, you should have a credit score of 700 or higher before applying for an RV loan. Some lenders may work with borrowers with lower credit scores, but you may need to provide a larger down payment and accept a higher interest rate.
You can view your credit report for free from each of the three credit bureaus – Equifax, Experian and TransUnion – at AnnualCreditReport.com.
3. Save for a down payment
Similar to car loans or mortgages, you will need to budget a significant amount of money up front when purchasing an RV.
Expect to pay a down payment of at least 10% of the purchase price, although some lenders prefer a 20% down payment.
Save for this amount over time by setting up a sinking fund and contributing a set amount into it each month or each time you get paid. Add any financial windfalls, like a work bonus or tax refund, to your savings to reach your goal even faster.
4. Shop around for the right RV and the right lenders
An RV is a big financial commitment, so take the time to shop around and find the right RV for you, one that meets your needs and wants, and that fits your budget.
Take stock of how you will use your RV. Will you need extra space for your grandchildren? Do you need something suitable for off-road adventures?
Also, be sure to shop around for lenders. Getting quotes from multiple lenders can help you find the best deals.
5. Submit loan application and sign final documents
The final step on your journey to buying your dream RV is completing and signing all of the loan paperwork.
In addition to checking your credit score and requiring a down payment, your lender will need information about your income and current debts. Your lender may even require an inspection – similar to a home inspection for a mortgage – which could cost you a few hundred extra dollars.
You will also need to register your vehicle and obtain insurance coverage as the final step to owning an RV.
Alternatives to RV Loans
There are other ways to fulfill your RV life dreams without taking out an RV loan.
You could save enough money to buy an RV without the need for financing. This may require setting a savings target and spreading the cost over several years.
You might also consider renting an RV instead of buying one, especially if you don’t plan on making frequent trips with your RV. Cruise America, Outdoorsy, and RVshare are just a few options for finding RV rentals near you.
Frequently Asked Questions
What are the typical terms of a motorhome loan?
The term of an RV loan can vary greatly. You could get a short 12 month loan or a 20 year loan. Just know that the longer the term of the loan, the more interest you will pay.
What credit score do you need for RV financing?
Having a credit score of at least 700 shows lenders that you are in good standing to borrow money responsibly. Some lenders may approve loans for borrowers with lower credit scores, but expect a higher interest rate and possibly pay a higher down payment than someone with good or excellent credit.
What are the average RV loan interest rates?
Interest rates for RV loans tend to be between 4% and 6% for those with good credit. However, the interest rate may vary due to a number of factors, such as the purchase price, the term of the loan and the age of the RV.
What should your debt ratio be for RV loans?
Lenders look favorably on borrowers with debt to income ratios less than 40%. However, some lenders will consider buyers with debt ratios of up to 50%.
Nicole Dow is a senior writer at The Penny Hoarder.
This was originally published on The Penny Hoarder, a personal finance website that empowers millions of readers across the country to make smart decisions with their money with practical, inspirational advice, and resources on how to to earn, save and manage money.