The Ultimate Guide to RV Financing

You have decided to pursue the RVing lifestyle. You have talked with friends and family who already own RV’s and have decided to purchase an RV. Asking yourself these questions is a good start:

  • What type of RVing do you want to do? Do you want to sell your home and full-time? Do you want to become snowbirds and head south for the winter or do you want to take family vacations for a week or weekend?
  • What class of RV do you want? Which will fulfill you and your family’s needs; a motor coach, a fifth wheel or a travel trailer?
  • Do you want a new or used RV?
  • How much money are you willing to spend or how much can you actually afford?

You can go online and start shopping on sites like RV Trader where you can find all types of RV’s, new and used nationwide. This would be a great way to start in figuring out what will meet your needs and how much RV’s cost. You can also go to manufacturers’ sites and YouTube to see what you’ll actually be getting and how much you can expect to pay.

After shopping online, going into RV dealerships and doing a walkthrough will allow you to see, feel and touch an RV up close and will give you a great feel for what you ultimately need and want. Choosing an RV will become time-consuming and take a bit of legwork, but the work will all be worth it in the end.

Financing Your RV

You’ve shopped for your dream RV and have a good idea of what you want, so now comes the hard part; financing your RV. Financing an RV is harder than financing a home or auto. Homes and autos are considered a “necessity” whereas RV’s are considered a “luxury”. Lending institutes know that when low on cash people cover the necessities before the luxuries.

Things you will want to look at before financing are:

  • Finance rate
  • Years/time to pay
  • Credit score
  • Insurance 
  • Extended warranties
  • Depreciation on new RV’s
  • How much you need to borrow
  • Credit to debt ratio

After you know the answers to these questions, finding who will finance you is your next step. There are four alternatives for financing:

Finance Rates

Finance rates/interest depends on several criteria. Your credit score and how old the RV is are two important aspects when it comes to figuring out finance rates; the higher your credit rating and the newer the unit, the lower the rates.

Years/Time to Pay

RV loans can extend anywhere from 10-15 years usually. The longer you take the loan out for the lower the monthly payment overall.

Credit Score

Bankruptcy, divorce and medical all wreak havoc on your credit score and in order to re-establish yourself you need to use credit that is allowed to you like credit cards.

A credit score of 700 or better will be more favorable to your financer. A good credit score is based on paying bills on time and using the credit that is available to you: Established credit.

You can receive free credit reports from:

  • Experian
  • Equifax
  • Trans Union

Insurance Rates

When financing an RV, it is required that you have full coverage on your unit to protect the financer. This will add to the overall cost of the RV.

Extended Warranties

Extended warranties are looked upon as a necessity, protecting you and your financer. Not all RV’s come off the assembly line the same and there can be problems even on the newest of RV’s. The longer you take the loan out for, the longer you want to stretch the warranty.

Depreciation of New RV’s

New RV’s can depreciate up to 45% the first year you own one. As soon as you drive your unit off the lot, the value goes down.

How Much You Need to Borrow

You need to consider how much you want to spend and how much your financer will allow you to borrow. Having a bigger down payment, up to 20% will help lower your payments.

Credit to Debt Ratio

You need to know much debt you’re carrying vs. your present income. Are you already paying a mortgage or auto loan? Have you purchased other “luxury” recreational vehicles: Boat, ATV or motorcycle and do you still owe on them? This will all be looked at by your financer.

Banks

Finding a bank that you already have a relationship with will better your chances for an RV loan. Banks will loan for a longer extended time. You will be able to stretch your payments out over 15-20 years rather than 10, which will lower your monthly payment.

Pros:

  • Using your own bank will work for you
  • No dealer mark-up

Cons:

  • No negotiating
  • Time it takes to get a loan

Credit Unions

Credit Union rates are lower than banks, but the time you have to pay on your unit will be shorter than banks, maybe 10 years.

Pros:

  • Lower rates

Cons:

  • Shorter terms

Dealers

Dealers outsource their loans and will work with you to get the payments you want, but their rates may be higher as will be the price of the unit.

Be aware that dealers will shoot your credit application out to 5-7 lenders at one time which can go against your credit score. It is best to avoid multiple credit polls.

Pros: 

  • Fast and convenient

Cons:

  • Rates not as competitive

RV Financing Companies

There are companies that solely loan out for recreational vehicles, “luxuries”. Three of the top companies are:

  • Good Sam Finance Center
  • Essex Credit
  • Alliant Credit Union

Pros:

These independent lenders usually have the best rates

Cons:

Your credit report will be pulled several times which is not good for your credit rating. Two to five points deducted each time a request is made.

Poor Credit

If you have a less than perfect credit score, below 700, then you can look into a rent to own companies. A lot of these are found on sites like Craigslist.

A few of the best finance companies for poor credit:

  • Cash USA
  • Bad Credit Loans
  • Personal Loans

Loan Rates:

You can check on loan rates at the following online sites:

  • RVs
  • RVT
  • RVTrader

Factors determining HOW you finance an RV

  • Current rates: RV rates shadow auto rates
  • Credit score: The higher the score the lower the interest
  • Down payment: An increase in down payment equals better APR and lower monthly payments

Making the right choice in financing can save you thousands of dollars.

Mistakes to Avoid when Financing an RV

  • Taking any price at face value
  • Not checking your credit score
  • Overestimating what you can afford
  • Taking the first loan available
  • Owing more than RV’s future sale price

Typical Case Scenario when Financing:

  • Customer finds an RV for $100,000 – Bank asks what kind of payment the customer is looking at
  • Customer says $750/month – Bank asks if customer willing to put anything down
  • Customer says they will put down $5,000 – Banks asks for $7,000 for $760/month payments
  • Customer ends up with a $763/month payment for 15 years at a rate of 5.25%
  • Customer actually borrows $93,000

Real Cost:

  • 1 year depreciation at 25-40%
  • Customer loses $25,000 in cost that won’t be recovered when selling the RV
  • $93,000/15 years/5.25% = $40,000 interest over life of the loan
  • Customer actually only purchasing $75,000 which is the real value of the RV
  • With interest, a $100,000 loan will cost the customer $140,000
  • Interest plus depreciation equals a total loss to customer of $65,000 on the RV

When it comes to financing rates:

  • Ask the lender to beat any given rate
  • Interest on the loan may be deductible on taxes
  • An RV can be deemed too old so higher interest rates ensue

Things you need to know:

  • Your credit history
  • Your debt to credit ratio – Look for 45% or less
  • Loan value as banks usually loan for between wholesale and retail
  • Age of RV – The older the RV, the higher the interest rate

There are many factors that go into financing the purchase of an RV. Knowing these factors and how they will affect you will only help you in the long run.

One of the best ways to approach financing is to first get pre-approved by a bank and by taking the paperwork to the dealer as a bargaining tool for you. This will leave you with multiple options and you can pick the best for you.

Financing the Lifestyle you Desire

Purchasing an RV can be exciting. You are choosing a great new lifestyle. Knowing the in’s and out’s of financing can help your purchase go smoothly and quickly so you can get out on the road and see all that the RVing lifestyle has to offer.

Here are some other RV related articles you may be interested in: