According to the Recreational Vehicle Industry Association (RVIA), more Americans are purchasing RVs than ever before. RV ownership has reached record levels as more people have discovered that RV ownership can save them big money when it comes to vacationing on a budget. An RVIA study found that RV vacations and road trips are the most economical way to travel when compared to other types of vacations (travel by car or airplane, rental of a hotel room or vacation home, meals in restaurants, etc.). In fact, a family of four can expect to save 23% to 59% on vacation travel if they own an RV. The convenience and flexibility of RV travel, combined with having a fully-equipped kitchen, bathroom and bedroom available anytime, makes RVing ideal for couples and families alike. And now, with low interest rates and a variety of financing options, that perfect travel trailer, camper, motorhome or toy hauler is more affordable than ever. If you’ve been considering an RV purchase—whether it’s your first RV or an upgrade from the one you currently own—now is a great time!
However, just as when you purchased your home or automobile, it’s important to recognize that purchasing an RV is a big investment, and the key to getting the best financing and keeping your monthly payments in line with your budget is to do your research ahead of time. In this two part blog, we’re going to talk about RV loans and rates, RV financing options and how to find the financing that serves you the best.
Get Your Ducks in a Row Before You Go RV Loan Shopping
It can be to your advantage in RV shopping to be pre-approved for financing before you ever step onto an RV lot. This way you know how much you have to spend and you can negotiate a price that works with your budget. It keeps you from letting your excitement about a new RV get carried away with itself, so you can avoid getting locked into monthly payments you can’t afford in the long run.
There are several things to take into account as you consider what kind of RV financing works best for your situation. First and foremost, there are two factors that are going to determine what kind of interest rates and financing options you have: your credit score and your down payment. Even small differences in interest rate can save you hundreds of dollars over the course of the loan, so these two factors matter a lot when it comes to affordability.
Your Credit Score—Your credit score will determine what kind of loan you’re eligible for, how much money you can get, your interest rate and the length of the loan (terms on RV loans generally range from 10 to 15 years, but can be longer for a more expensive model). RVs are most often considered a luxury item, so lenders usually require a good credit score in order to qualify you for an RV loan and to give you the best rates. A less-than-stellar credit score doesn’t necessarily mean you can’t get a loan, but it could mean that you will pay significantly more in interest, which puts the overall cost of your RV much higher than the sticker price and also means higher monthly payments. Therefore, it’s in your best interest to make sure your credit score is in good shape before you apply for RV financing. If your credit score needs help, it might make sense for you to wait before you apply for financing, and work to improve your score.
So, step one is know your credit score! If you’re unsure, you can get your score for free at your bank or credit union, as well as online. One good source for a free annual credit report is: AnnualCreditReport.com. And if you’d like to know more about what goes into your credit score, here’s a good overview.
Your Down Payment—Assuming you have a good credit score, it is possible to get 100% financing for an RV. That said, most lenders like to see a down payment of 10% to 20%, and this actually helps you in the long run. Having a down payment of at least 10% can qualify you for a better interest rate and also means your monthly payments will be lower. Therefore, if you don’t have a down payment, it might be in your best interest to spend some time saving before you apply for financing.
Once you know your credit score and how much money you have for a down payment, you can get an idea of how much your RV loan payments will be by using an online loan calculator, or by speaking with your lender or the finance department at your RV dealership.
Other Costs to Take Into Account Before Getting an RV Loan
When it comes to financing an RV, it’s easy to only think about your monthly payments, and forget the other costs that go into RV ownership. These include ongoing maintenance costs, taxes, fees, insurance, warranties, etc. They are essentially the same add on expenses we all have with owning a car, but can be more expensive with an RV, depending on what you purchase. As you are calculating your RV financing budget and what you can reasonably afford, remember to take these costs into account because you don’t want any unpleasant surprises down the road that will interfere with your camping and road trip plans. Things to consider include:
Licensing and Fees
Insurance (Read our RV Insurance 101 blog for more information on discounts, etc.)
Regular Maintenance (seals, storage tanks, slide-outs, etc.)
RV Winter Storage
You may be able to save yourself some money by taking an RV driving class. Maybe you’ve been driving a big Class A motorhome or towing a fifth-wheel toy hauler since you first got a driver’s license, or maybe you’re new to the RV lifestyle. Either way, taking a driving course is a good way to help you stay on your A-game in terms of driver safety, and it may also reduce your insurance rates. Contact your insurance agent for more information.
You may also be able to get some tax benefits by owning an RV! Certain models qualify as a second home and can earn you federal tax breaks based on the interest you pay each year on your RV loan. The IRS language from Publication 936 states: “A home includes a house, condominium, cooperative, mobile home, house trailer, boat, or similar property that has sleeping, cooking, and toilet facilities.” A lot of RVs meet those requirements, so be sure and speak with a tax advisor to find out if your new RV qualifies.
Next week we’re going to continue this discussion on RV financing and talk about loan options, new vs. pre-owned RVs, and an idea for first time RV owners that can help you work up to the RV of your dreams.
If you have any questions, please give us a call or come visit us at Guaranty.
Photo Credit: Andrew Bone