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The mere fact that you’re reading this article means you’re interested in an RV. Who wouldn’t be? Many families make owning an RV part of their ‘wish list’. It’s so popular that the RV park business is now a $6 billion industry in the United States.
But, how can you make it all come true? If you haven’t saved enough cash to buy your motorhome outright, you may be considering getting an RV loan to finance your purchase.
We suggest that you first read this article before you head out to sign up for a loan for your RV purchase.
How To Finance an RV Purchase
Financing your purchase of a new or used motorhome can come in many ways. In fact, there are three popular ways to do it, namely:
Through a Motorhome Dealer
Motorhome dealers act as brokers between an RV buyer and a lender. As the go-between, they also expect to earn from their services so expect them to add a mark-up on the financing rate as their share.
You will notice that the interest rate of an RV dealer is often higher than the one you get from a bank.
But, this isn’t cast in stone: you can still negotiate the rate downward. And sometimes, motorhome dealerships have promotional offers that can give you better rates than your bank. Dealers are more open to financing a loan for a borrower with bad credit – but don’t expect it to be cheap.
Through a Bank or Credit Union
Banks and credit unions directly provide financing from out of their own funds, so whatever rate they offer already accounts for their spread. This means lower rates for RV loans compared to what dealers will give.
But the other side of the equation is that, with banks and credit unions, you can’t negotiate to bring the interest rate down. Most often, they will already quote their final offer. Another advantage of a bank or credit union is that you can make use of your existing relationship with them. For example, in case you fall behind on your payments, they are more open to discuss and work out a solution with you.
On top of these things, banks and credit unions can pre-approve you for a loan. This can help you negotiate for a better rate with a dealer because you can always show that you have a pre-approval letter from the bank.
Through Personal Loans
You can try to apply for a personal loan in case your credit or income disqualifies you from a dealership/recreational vehicle loan with the dealer or the bank. Banks and other financial institutions offer personal loan products. Some lenders will entertain applicants with credit scores as low as 580, so this is a better option than other forms of financing where there are tighter requirements.
If you’re considering a personal loan, you should understand that there are limitations. There is a maximum amount that you can borrow and it’s not very high. Many lenders will only lend as much as $100,000 – which won’t be enough to cover the cost of the RV. Also, their repayment terms are likely to be shorter than with other loans. On average, they might only give up to five years to repay the loan.
As a result, many lenders shy away from giving RV loans to full-timers.
Fixed Vs Variable RV Loan
The RV loan rate will vary according to the type of loan that the buyer wants, whether he wants a fixed loan or a variable loan. The kind of loan will determine whether the lender will give a low RV loan rate because the two types of loans have two different payment plan schemes. The lender or the buyer can use an RV loan calculator, which is also available online, to make some simulations and from there evaluate the different options.
When the buyer finishes with his computations and is okay with his budget, the loan officer can already file the application for an approved RV loan with low interest rate.
RV Loan Mistakes To Avoid
Any time you apply for a loan, regardless of how much, you should always think through it. We know that the prospect of having your own RV and being able to drive on the open road to spend time close to nature with your family sounds postcard-perfect. But it could lead you to be too emotional and less practical that you might miss some important considerations when it comes to getting your financing.
Before you put your signature on the form, take a long pause and check out these common mistakes people make when taking out an RV loan.
1. Not Negotiate Your Interest Rate
You don’t have to say ‘Yes’ to the interest rate they offer if you don’t like it – you can, and you should, ask for a better rate! The interest rate that the dealer or RV lender will quote is almost always negotiable because they know that the borrower may try to haggle.
You can bet that they’ve provided enough buffer for them to make a profit even if they let you get a lower rate on your loan.
2. Shop For Your RV Before You Shop For Your Loan
This is a common mistake but it’s something easy to avoid. Between looking for a vehicle to buy and researching for financing options, the priority should be the latter. First, get a firm idea on exactly how much money you will be able to spend before you fix your eyes on a brand, model or color that you want.
Of course, the type of RV that you will eventually buy will primarily depend on the principal, terms, and conditions of your loan. Having an idea of your financial situation will guide you in your quest and prevent you from committing to a motorhome that you will not be able to pay off.
3. Not Understanding The Difference Between APRs And Interest Rates
There is a big difference between the annual percentage rate (APR) of a loan and the interest rate. The interest rate refers to the percentage of the total amount you will pay as interest each year, so it’s pure interest.
The APR also considers the interest rate and the other fees you must pay for getting the loan.
The right way to compare loan offers of lenders is to do it APR versus APR, and not APR against an interest rate.
4. Not Comparison Shopping
Many buyers, perhaps in their excitement, commit this blunder and pay a dear price. When looking for a lender, make the effort to compare and contrast offers from at least 3 or 4 different lenders. Make sure that you check out the offers of different types of lenders as well such as banks, credit unions, and companies that focus on RV loans to get a better picture.
5. Not Checking Dealer Promotions
Dealerships use a lot of gimmicks to entice buyers, so they often come out with special promotions. These can provide good deals to buyers, but it is important to approach with care.
Some of these promotions include hidden fees or misleading introductory rates that can eventually blow up the cost of your purchase. Pay attention to the fine print. Sometimes, you can get the same deal – or a better one – from an independent dealer.
6. Not Consider The Big Picture
When making a decision to get a loan, many buyers just check if they can meet the monthly payment. It’s better to consider the length of the repayment time and the total interest. You can have a loan with a lower monthly payment, but it would mean a longer loan term and paying more interest in total. You could end up on the losing end because you will be paying more for what your RV is really worth.
7. Disregarding Their Credit Score
You cannot avoid talking about credit history when you are applying for a loan. It determines, for the most part, whether you can qualify for a loan and if so, under what terms and conditions. If you know your credit score beforehand, you will have the advantage when negotiating the terms of your agreement.
Go through the entries to see if they are current and correct. If there are any mistakes, take steps to correct them before your try to apply for a loan
8. Borrowing Too Much
Think of buying an RV as a major investment and not an expense so, you have to be sure what you can and cannot afford.
You should create a comprehensive budget that includes all the costs of ownership and be absolutely certain that you can afford the financing for your RV before you commit to the loan.
The Bottom Line
Buying an RV could be a mind-boggling exercise, but the rewards could be terrific. If you try to avoid all these common mistakes, you can get your RV and enjoy it without agonizing over your monthly payments.
Don’t forget to check out the different dealerships, banks and other financial institutions to try and get the best financing deal.
Here’s the trick: when dealers sense that you’re not too convinced to get your financing through them and are entertaining other options, they become more open and generous.
You could help yourself tremendously by getting a pre-approved loan through your bank and bring the letter with you to the dealership. Of course, the dealer would like to finance your RV, but when you have a pre-approval letter with you, you have a bargaining advantage. The best strategy is to try to open as many options possible, so you can evaluate offers and then choose the best deal you can get to buy the RV you’ve been dreaming of.