Sales of recreational vehicles have been rising in recent years — more and more Americans are hitting the road in RVs, driving everything from luxury motorhomes to vintage camper vans. But how are buyers paying for their mobile vacation homes? While a select few RV owners can afford to buy their vehicles outright, many turn to an RV loan to finance their new purchases.
Because new RVs usually cost tens of thousands of dollars, and luxury RVs can easily cost in the six-figures, buying a new RV is a big financial decision, closer to buying a new home than a new car. However, despite the higher price tag, RV loans work much like car loans. An institution agrees to loan you the money to buy an RV, and you’ll pay back that money over an agreed upon amount of time, plus interest.
But not all RV loans are equal: Here’s what you need to know about RV financing and how to find the best RV loan for you.
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As we mentioned above, financing an RV is similar in many ways to financing a car or a house. You get a loan from a bank, credit union or a lender working through an RV dealership. They then become your lienholder, or the party that owns your loan.
You’ll sign an agreement detailing the specifics of the loan, like the loan term, which is the amount of time you have to pay back your loan, the annual percentage rate, or APR, which is basically how much the lender is charging you for the loan, and how much your monthly payments will be.
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It’s always a good idea to shop around for a loan before you settle on a lender, to make sure you’re getting the best deal possible. Different lenders may offer you different interest rates and loan terms, both of which affect the lifetime cost of your loan.
Most RV loans are secured loans, meaning you use the RV itself as collateral. For as long as you owe money on the loan, your lienholder has a financial stake in your RV, and if you can’t afford to pay back the loan, the lienholder can take possession of your RV.
Because RVs generally cost more than cars, RV loan terms tend to be longer than car loan terms. But the loan term also depends on how much you’re borrowing.
A smaller RV loan of between $10,000 and $25,000 may have terms as short as two or three years. But many RV loans are 10 year terms, and many lenders will allow you to have a loan term as long as 20 years on RV loans that are over a certain amount, like $50,000.
As with car loans, the lifetime cost of an RV loan depends on a number of factors, like your down payment, which is the cash you pay for your RV upfront, and the principal, which is the initial amount of the loan. The offers you get will also depend on your credit score, which is a metric lenders use to gauge how trustworthy you’ll be as a borrower.
A lower APR doesn’t always mean you’re getting the best deal — a longer loan term with a lower APR can wind up costing you more than a shorter loan term with a higher APR. But the shorter your loan term, the higher your monthly payments will probably be. That’s why it’s important to compare loan offers before settling on one.
It’s also important to factor in depreciation. An RV is a big investment, like a house, but unlike buying a home, RVs depreciate in value quickly. If you plan on selling or trading in your RV before you’ve fully paid it off, you might find that you actually owe more than the RV itself is worth. In that case, the money you make from selling it won’t be enough to pay off the remainder of the loan.
When figuring out loan payments, don’t forget that you’ll also need to get RV insurance for your new ride.
Just like with other types of loans, there are a number of options when it comes to where to go for an RV loan, and each has its own positives and negatives.
Going through a bank or a credit union that you already have a relationship with may mean you’ll get a better rate, and you’ll be borrowing directly from the lending institution, so there’s no third party involved. But getting a loan from a bank or a credit union usually takes a little bit longer than getting one through an RV dealership, and there probably won’t be any room for negotiations.
Like with cars, you can usually get an RV loan at the dealership where you’re purchasing your new vacation home on wheels. Going through a dealer is usually the fastest option — you can often make a deal the same day you see an RV. Dealerships may also be able to offer low rates through special promotions. But generally, rates tend to be higher through dealerships than through banks or credit unions, and there may be extra costs and fees involved.
(Read more about the pros and cons of dealer financing.)
If you have poor credit and are having trouble qualifying for RV loans, you always have the option of taking out a personal loan. This kind of loan is unsecured, meaning you don’t use the RV as collateral. But personal loans usually have higher interest rates and shorter terms than secured RV loans, so this is likely a more expensive and riskier option when it comes to purchasing an RV.
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