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Comparing loan quotes for January 2022 will ensure you have the best chance of driving the right RV for your budget.
What is an RV loan?
An RV loan works as a personal loan that allows drivers to use the money to purchase a recreational vehicle (RV). Depending on the type of RV you want to buy – be it a camper van, motorized RV, pop-up trailer, or fifth-wheel – you can use the funds to drive away a brand new RV. It offers a lot of flexibility for drivers who cannot afford to buy a new RV outright, enabling them to repay the loan over a fixed period.
There are two types of RV loans: secured and unsecured. The majority of RV loans are secured, which uses the vehicle as collateral. Most dealers prefer to use this option because it offers protection should a customer default on their loan later. If the customer can’t repay the loan, the creditor can take possession of the RV and sell it.
How do you get an RV loan?
An RV loan works in a similar way to taking out finance on a vehicle or property. You need to secure a loan from a bank, lender, or credit union that works with an RV dealership. Before doing this, you should look at how much you can afford to repay each month and the type of RV you would like to buy.
You request how much you would like to loan, and they will carry out the necessary credit and affordability checks to ensure you are a good fit for the amount requested. If successful, you will sign the loan agreement, containing details such as how long the loan period lasts, how much you have to pay each month, and the APR (annual percentage rate).
What are the advantages of an RV loan?
There are several advantages to using an RV loan:
- Payments are spread over several years: Buying a vehicle outright can be expensive, but an RV loan allows you to spread the repayments across a fixed period. This makes it easier to manage your money every month, allowing you to drive a new RV without affecting other essential bill payments.
- You could get a better RV: Another positive is you could drive away a better quality RV than buying one outright. That’s because the payments are broken down into monthly installments, giving you a more comprehensive range of options when it comes to deciding the type of RV you would like to drive for the next few years.
- You become the RV owner: Unlike leasing an RV, you own the RV from the start. It also means you can modify the vehicle however you want, as it will not have to be returned (provided you maintain repayments).
- Repayment flexibility: Depending on your credit rating, you may have greater options to set the loan period. The better the rating, the more flexibility you are likely to have. You should bear in mind that the longer it takes to pay back, the more interest you could spend over that period, so it’s essential to strike a balance between the two.
- Help with taxes: RV loans work differently from typical automobile loans, as you may have the option to declare the vehicle as a primary or secondary residence. As a result, this could also reduce the amount of federal taxes you have to pay.
How to choose the best RV loan for you
Essex Credit’s RV loans are best for people serious about RV living. What type of RV are you purchasing? The type of RV you want to buy will go a long way to helping you choose the best RV loan for you. The main types of RV available are:
- Class A-C (A is the most expensive, while C is more affordable)
- Travel trailers
- Fifth-wheel trailers
- Pop-up trailers
- SUV trailers
- Truck campers
You will choose the type and size of the RV based on what you plan to use it for and the number of people traveling regularly. Along with the model and manufacturer, these are the main factors that will dictate how much the RV loan will have. This will allow you to assess how much you can afford and set a budget limit, narrowing down your options to make your search more focused and targeted, allowing you to make a faster – but informed – decision. Be sure to read through our RV lender reviews for unbiased reviews of your loan options.
How your credit score affects RV financing
Your credit score will play a significant role in whether you will qualify for an RV loan while also affecting the types of terms offered to you by a dealer.
Generally speaking, the better your credit score, the better terms you will be offered, while the opposite is also likely to be true. Your credit file will tell lenders if you are a suitable fit for a loan and provide a guideline on the likelihood of the loan being repaid in full without issue.
A good credit score is usually rated somewhere between a 650 and 750 FICO score. If you are unsure about your current credit rating, you can ask for a copy of your file from Experian, Equifax, or TransUnion for free.
You should also bear in mind that any application made for credit – be it RV or otherwise – will be recorded on your credit file, whether you are successful or not. If you already have a poor credit history, you may be less likely to offer an RV loan, and applying could negatively affect your credit rating even further.
Are you living in your RV full-time?
Some people choose to live in their RV full-time, giving them the freedom to travel as they need around the country. If your RV is your primary place of residence, there may be some tax benefits you can enjoy. To claim your RV as a property, it must have:
- Bathroom facilities
If your RV satisfies these three features, you can treat it as a primary or secondary residence. Special insurance may be required if you declare your RV as a residence, which an insurance provider will be able to provide more in-depth information about.
You are only allowed to claim one home as your principal place of residence at any one time. It must also be where you live for the majority of the year. This will allow you to claim homeowner tax deductions against your tax bill. Bear in mind this is only for RVs that are being used as security for the loan, which will allow you to deduct mortgage interest paid on your loan.
And if you decide to move back into a fixed, traditional property, you can claim the RV as your secondary residence, allowing you to claim the same tax deductions.
The two types of RV loans – which is right for you?
When applying for an RV loan, there are two types to choose from, either secured or unsecured. But how do you know which one is right for your situation?
- Unsecured RV loan: This means the RV itself is not used as security against the loan and cannot be repossessed by the lender. Lenders are taking more of a risk with this type of loan, which is why interest rates will be higher. A significant incentive for people interested in taking out an unsecured RV loan is that loan funds are usually provided much faster than secured loans. Many lenders also offer pre-qualification, giving you a good indication of the size of the loan you will be able to claim.
- Secured RV loan: While a secured loan means the RV is used as collateral and the lender could repossess it if you default on payments, there are some significant advantages to this option. Even if you have average credit, you may be able to borrow more than you would with an unsecured loan, potentially giving you access to a better range of RVs. Secured loans also tend to offer lower rates, which means you spend less money across the length of the contract.
Deciding on an acceptable interest rate
Interest rates for RVs can vary right across the board, with changes to the rates provided by lenders moving in line with the Federal Reserve’s changes to national interest rates. Deals can range anywhere between 4-20%, and sometimes even higher.
This will affect anyone who chooses a variable rate loan instead of a fixed-rate loan. While a fixed-rate loan may seem like an attractive option at first, as it means the interest rate cannot increase, remember that it works both ways. If national interest rates are lowered, which is then followed by your lender, this means you will not benefit from the lower interest rate for that period.
The general rule is, the longer the loan is for, the higher the rate offered. And up to a certain level of cost, the larger the RV loan, the lower the APR rate is likely to be.
When it comes to deciding on an acceptable interest rate, you should not isolate the interest charges by themselves. Add the rate to your monthly installment, along with all the other costs such as fuel, repairs and maintenance, and insurance, so you can see how much extra the interest rate is adding to the total cost.
To ensure you are getting the best rate, you need to compare and shop around. There is no ‘general’ interest rate acceptable to all customers, as everyone is working to their own budgets.
How to finance an RV loan
There are considerations to take if you are interested in getting an RV loan:
Set yourself a budget: Before applying for an RV loan, you should set a budget to see what you can afford. Entry-level RVs may be available for around $8,000, while high-end RVs can cost hundreds of thousands of dollars if you want all the luxury trimmings. Loan terms are usually 10 to 15 years but can sometimes extend up to 20 years for $50,000 or more loans. It’s a long-term commitment you need to be comfortable signing
up for. A lot can change during this period of time, so be sure to take this into account. Also budget for things such as:
- Gas and maintenance costs
- Utility costs (electric, water, cable)
- Camping and storage fees
- Save money for a deposit: The majority of RV companies will look for a 10% down payment. Some may ask for as much as 20% – this will depend on the RV value and your credit rating. The larger the deposit you can afford, the lower the monthly payments will be.
Review your credit score: To get the best possible RV loan, you will need a good credit score, which will help you secure a deal with a low-interest rate. A credit score in the 700s is generally considered to be good. You can request a free copy of your credit report from either Experian, Equifax, or TransUnion at any time. Depending on your score, you may also have the option of a secured or unsecured RV loan. They each have their own pros and cons:
- Unsecured: Lenders can generally provide this type of loan very quickly, and the loan will not be secured against the RV, meaning it cannot be repossessed. However, the interest rates could be higher.
- Secured: A secured RV loan is likely to have lower rates while also allowing you to borrow more, even if your credit rating is only average.
How to find the best RV loan rates
When you are searching for an RV loan, it can at first seem like a daunting experience. While the internet generally makes it easier to find the things you need, if you are unsure what to look out for, the number of options available today can feel a little overwhelming.
There are several ways you can find a strong finance rate for an RV loan, with online offers, banks, and credit unions all offering their own range of benefits. There is no right or wrong way to find a loan that suits your circumstances – only the right loan for your budget. And with so many options available in today’s world, once you know what to look out for, it shouldn’t prove too difficult to narrow down your options quite quickly.
Compare online offers
Always allow as much time as possible to compare offers online, so you can make an informed decision about one of the biggest purchases you will make in your lifetime.
Each month we offer a comprehensive overview of the very best offers currently available, making it easier for you to see which one suits your financial situation best. The three basic features you will want to look out for are:
- APR rate: This is the added interest on top of your standard monthly installment. Check whether this is fixed or flexible, as both have their pros and cons. Also, be aware that the advertised APR rate is improbable to be the same as your loan rate.
- Repayment term: How long you have to repay the loan. This usually ranges between 10-20 years – the longer the loan, the lower the monthly installments, although the more you will pay in the long run due to the added years of interest being paid.
- Secured or unsecured: Most RV loans are secured against the vehicle itself, although this is not always the case. Secured loans generally offer lower rates and larger loan amounts, while unsecured loans are usually quicker to secure funding for and cannot be seized by the lender in the event of default.
Loan terms for new RVsLoans for new RVs worth up to $75,000 can have rates ranging anywhere between 4-20%. Of course, the rate offered will depend on the details given to the lender during the credit check, which means the better your credit history, the lower the APR rate that lenders will offer to you.
Always be wary of the advertised APR rates, as these are essentially used for marketing purposes only and will usually only show the very best rates available. However, unless you have an exceptional credit rating, it is improbable you will be offered this sort of rate.
In terms of the repayment period, you should expect to be asked to repay the loan over the course of at least 10 years. You should have the option to extend it for a longer time, reducing the monthly installments. However, you should take a bigger picture view on extending the terms. While the monthly amounts may be smaller when you add in the interest over the additional years, you will actually pay more money for the RV than you would of during a shorter repayment period.
Loan terms for used RVs
Due to the cost of buying an RV, it is understandable that not everyone can afford to take out a loan for a brand new motorhome. However, that doesn’t have to mean an RV remains unobtainable. A used RV can prove to be an excellent investment to make and can also help make things much more affordable.
While you will notice that buying a nearly new or slightly older model will prove to be cheaper in terms of cost, you will also see that the loan terms tend to be quite similar.
A loan for a used RV will still be a substantial amount of money, and the repayment terms will reflect that, with the money paid back across a 10-20 year period.
Similarly, APR rates will also be like those offered to anyone buying a new RV. Even though you are buying a second-hand vehicle, there is still a risk involved with the lender giving you the money, while the APR is also where the dealer will make their money on the deal. Typically you’ll be looking at anywhere between 4-20%, depending on your financial situation.
Overall, a loan for a used RV should still be cheaper, as you will need less money to buy the unit, and even with the additional interest, the costs should be more manageable.
How loan terms impact your payments
There is something of a balancing act to be struck when it comes to finding the right RV deal, as the various components of the loan will all impact on the overall cost:
- Loan term: Consider how long it will take to pay off the RV loan. It may be 10 years (120 months) or 15 years (180 months), with the number of months equal to the number of payments that will have to be made. The general rule is, the shorter the loan term, the higher the repayments will be. However, while a longer repayment period reduces your standard payment (not including interest) when you add interest across the additional years, it could end up being more expensive.
- Loan periods: Although it sounds similar to loan terms, the loan period could refer to the period between interest charge calculations or monthly payments. That tends to be every month for most loans. For example, if your annual rate is 10%, the monthly (or periodic) rate could be 1%.
- Terms and conditions: These are the conditions you sign up for the loan. Aside from the monthly installment requirements and interest rate, it will also list details about financial penalties or additional fees, such as paying off the loan early.
- Interest rate: This will either be fixed or variable, and the higher the rate of interest, the more you will have to pay each month. A fixed rate gives some security that it cannot be increased, while a variable loan allows you to enjoy lower payments if the rate is reduced at a later stage.
Choosing the right RV loan term for your goals
While the APR rate offered to you by the lender will always be determined by your previous credit history, you will usually have control over the length of time you have to repay the funds (outside of the minimum repayment period).
The importance of knowing what you intend to use your RV for isn’t so that you can get the most out of the unit. It also plays a big role in helping you decide how much you want to spend, and subsequently, what sort of loan term you want to sign up for.
For example, if you intend to use the RV only on odd occasions, or a handful of times throughout the year, you may not want to invest too much money into a loan. You could look into purchasing a second-hand RV if this suits your goals.
It may also be more affordable for you to repay the loan over a longer period of time. The opposite is equally true, so if you intend to use the RV regularly, you’ll probably want a good model that is more expensive and will stand up to wear and tear.
You may also want to keep the loan term as short as possible, so you are not tied into a decade-plus long agreement the requires more than 120 payments. While you will be paying a higher rate on a shorter loan, it also means you can see the light at the end of the tunnel far sooner and will be free from the burden of the debt without it dragging on for longer than you need it to.
How to compare RV lenders for the best deal
There is no shortage of RV finance lenders, so it pays to take time to do your research. The key features to compare are:
- Loan terms: How long is the deal likely to last? Do you want a short or long-term contract? What sort of fees might you have to pay if you want to pay off the contract early?
- APR rates: The APR (annual percentage rate) will determine the amount of interest you pay each month in addition to the cost of the RV. The advertised APR will likely be different from the rate offered to you at the point of sale, and your existing credit rating will dictate it: the better your score, the lower the APR is likely to be. Shorter-term loans are also likely to have higher rates. Secured RV loans generally offer better APR rates than unsecured loans because the loan is secured against the vehicle, giving the lender more protection.
- Additional loan fees: After considering the APR rates and terms, be sure to understand any other charges that could apply to your loan or applications. These will vary by the bank offering you the loan. Be sure to ask for information about any other fees you will have to pay so that you can calculate them into your total cost. Common fees include loan application fees, administrative fees, and prepayment fees if you pay your loan off early.
- Calculate your total cost of ownership: The three pieces of information should give you a good estimate of what you should expect to pay in total for your RV. In general, longer loan terms and higher APR rates will mean more money out of your pocket. These are the two areas to focus your negotiation on, and they will be influenced by your credit score, down payment, and other factors. Important: some lenders may focus on lowering your monthly payments during negotiation at the cost of increasing the total amount you owe (often through longer loan terms). There is nothing wrong with negotiating for lower payments, but remember that you are on the hook for the entire payment.
- Calculate your monthly payments: We added this consideration last because it results from the ones that came before it. Your monthly payment will be a function of your loan terms, APR rates, and total cost of ownership. Buying an RV is exciting, but don’t let yourself sign up for payments you can’t afford. Be sure to keep your monthly payments to a reasonable amount to avoid defaulting on your loans. Only you can decide how your RV loan payments fit into your overall budget, so don’t agree to a deal until you have had time to review its impact on your monthly budget.
How to understand the true cost of RV ownership
When investing in a new RV, there is more to the cost than just the loan’s monthly repayments. You have to include the ongoing costs of owning and running the vehicle every month. Here are the main factors that have to be included in the ‘true cost’ of RV ownership:
- Terms: Whether the loan period is 10, 15, or 20 years, this will be one of the largest financial commitments you will make in your life. That means it will become one of the biggest outgoings each month. A lot can change in 10-20 years, so be sure you are ready and able to commit to repaying a large loan over a long period of time.
- Deposit: You should expect to put down around 10% of the RV’s value at the contract’s start. The deposit needed may be higher, depending on your credit rating, but either way, you have to put down this large initial payment to start the contract. The more you can commit, the lower your monthly repayments will be.
- Interest: Average interest rates are usually between 4-6%, although they can go up to 15% or even higher in some cases. Much will depend on the terms of the loan and your credit rating when making the application.
- Fees: Before signing a contract, always be sure you are aware of the full fees involved. The dealership may charge extra for document preparation and processing and a prep fee to get the RV ready for you to drive away. Ask at the point of sale for a full list of charges involved in the deal.
- Maintenance: A new RV is less likely to break down in the first couple of years, but it will require maintenance and repairs over time. The dealership may offer a maintenance and repair package to be included with your monthly payments but shop around to ensure you are getting the best deal possible.
- Storage: If you do not have somewhere to store your RV when not used, you may choose to put it in a storage unit. This will add an extra bill each month that needs to be accounted for, so again, shop around to get the most cost-effective deal.
- Taxes: This will vary from state to state, but be clear about the tax rates that will have to be applied to the RV you are buying. You may even be able to declare it as a primary or secondary residence, which could lower the amount of taxes you pay.
- Insurance: An essential part of any vehicle ownership and a cost that has to be covered every year. The dealership is likely to offer you an insurance package when you buy the RV, although you may be able to consider getting insurance from a separate source.
Are RV loans tax-deductible?
When you take out a loan as large as an RV loan, you will want to know if you can use any tax breaks to reduce costs. The vast majority of loans do not qualify for a tax deduction of any sort; however, there may be some tax breaks you can apply to an RV loan as long you meet the criteria.
As stated in the IRS Home Mortgage Interest Deduction publication, to qualify for a tax break for your RV, it needs to be either your “main home or your second home.” Mobile homes or house trailers can be used as either of those, as long as it has “sleeping, cooking and toilet facilities.”
This means as long as your RV allows you to spend at last 2-3 nights inside without the use of any external facilities, then it satisfies the above criteria. Bear in mind that the tow vehicle used to haul a fifth wheel or similar does not fall into this category.
You can apply for this tax deduction only if you have taken out a secured loan on your RV – meaning the vehicle is being used as an asset against the loan.
If your RV is used for business travel, you may also be able to write off the mileage used during those trips. As of 2020, this is calculated at 57.5 cents for each business mile driven – although this is likely to change each year, so be sure to keep up with new rates introduced at the start of each tax year.
Anyone who uses their RV as a rental vehicle only (not for any sort of personal use) may be able to claim it as a business expense, allowing you to write off additional costs related to care and maintenance.
Finally, your RV may also qualify for a motorhome sales tax deduction. Even if you paid for the RV in cash and are not paying interest, you may still be eligible for this tax break. However, if you live in either of the states below, you will not be able to qualify as they do not assess sales tax:
- New Hampshire
When should you avoid applying for an RV loan?
Like anything else you invest a sizeable amount of money into, you get back what you put into buying an RV. Next to your mortgage, an RV loan will likely be the second largest loan you take out, and it will tie you into monthly payments for at least a 10-year period.
When you don’t have a budget
You need to have an idea of the budget in mind before making any serious inquiries about taking out an RV loan. With thousands of dollars involved, you should take the time to plan and look at what you can comfortably afford – not only in terms of the monthly installments but also the other costs involved with buying an RV.
In addition to your interest and fees, there will be additional expenses like:
- Deposit (usually at least 10% is required as a down payment for the loan)
- Repairs and maintenance
- Sales tax
- Storage costs (when the rig is not in use)
You don’t need to have an exact idea of your budget down to the last cent, but once you have looked at your monthly income versus expenses, accounting for your RV budget should not mean you have no surplus income left at all. You should only invest in an RV if your monthly budget allows you to have a comfortable amount of money to live on after the RV expenditure has been taken into account.
When you don’t know your goals
Knowing your budget is one thing, but if you do not know why you want to buy an RV, this needs to be your start point.
What you would like to do with your RV to dictate the size and features you’d like included in the package. Will you use the RV regularly, heading away on frequent weekend trips or occasional long-haul journeys lasting weeks? How many people will be using it, and do you have a driveway or garage to store it when not in use?
There is a range of RV types to choose from, and once you know what you want to use the RV for, you can then decide which type of RV will work best for you. For example, you might be tempted by a pop-up trailer that is compact in size but can be expanded into something larger when you pitch up to camp. Do you own an SUV and want a trailer that you can haul for long distances? Or would a larger model like a fifth-wheeler be closer to what you are looking for?
Without knowing your goals, it makes little sense to apply for an RV loan. Take time to think about the questions above and research the types of RVs that will best suit your requirements. You can then set your sights on applying for a loan safe in the knowledge you will be able to get the most out of it for years to come.
When you can’t easily afford the payments
Above all else, affordability is the most important element of taking out an RV loan. Given the size of the loan you will be applying for, it makes little sense to tie yourself into such a large financial commitment if money is too tight.
RV loans run for anywhere between 10-20 years, which will require you to make monthly payments for that period of time. Of course, nobody knows for sure what their financial status will be exactly in a decade, and life can throw up all sorts of curveballs along the way, but you can make a sensible judgment based on your current situation.
If you are in stable employment with a good salary and have a comfortable amount of income left over each month after taking RV costs into account, then you should continue with your application. If you are unsure about work in the short-to-medium term and can afford to pay for an RV loan on paper but have barely any money left after taking all your other bills into account, it may be too much of a risk at this point.
The decision may also be taken out of your hands by the lender. They will perform a credit check which will give them an indication of your financial health, along with proof of income for affordability reasons. If they believe you cannot afford to repay an RV loan, they will likely refuse your request.
When you haven’t researched the best RV loans
When you search the property market to buy a home, you won’t invest your money into the first property you come across. It’s an approach that should also be applied to buying an RV to ensure you get the best possible value for your money.
If you have not researched the best RV loans available at the moment, there is every chance you could end up spending money on a bad deal. There is nothing worse than rushing into a purchase only to see a better one available shortly after you have committed your money elsewhere.
In decades past, research required a lot more time and effort as it all had to be done manually. There is no shortage of information online about RV types, models, and the best deals available for loans. Shop around to get comparisons to ensure you are happy with the payment terms and APR being offered.
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