Multiple times throughout the busy season we get questions about RV financing. Below are five of the most asked questions and answers that will help make you a more educated RV buyer!
1. What interest rate can I expect? | Interest rates are based on several variables including: your credit score 760 and above is excellent, whether the unit is new or used, the amount you need to finance, etc. Typically, customers with credit scores in the mid 700s and higher can expect the best rates. It is not uncommon for your local credit union to offer you a better interest rate than a bank.
2. How long can I finance for? | Typical RV buyers finance for 8-12 years. Terms up to 240 months are available for higher priced travel trailers, fifth wheels, and motor homes. It is best to find the shortest term you are comfortable with, as this allows you to build positive equity in your unit.Banks get the gold star in this area as most are more likely to finance at longer terms than a local credit union.
3. How much down payment do I need? | Most banks, if you have good credit, will require 5%-10% down payment for new units and 10%-20% down payment for used units. Of course, if you have a trade and have positive equity in that trade, that can serve as your payment. A gold star goes to the credit union in this area as many of them will consider financing with no down payment for approved customers. Again, there are many, many variables that can affect the amount you need down. Each unit, each bank, and different credit reporting agencies can all factor in to this equation.
4. How do lending institutions determine how much they will finance? | Most companies use NADA appraisal guides to determine RV values. Some will use the wholesale base value multiplied times a percentage Ex: $20,000.00 X 1.25% =25,000.00. Some will just take the base retail value and use that as their guide. Others will use a value in between these OR consider the added options the unit has in their valuation. Your local dealer or bank representative will be the best to explain your many options to you.
5. Is it better to just pay cash instead of having a loan? | This is a GREAT question and the answer will have many, many different opinions. I want to put opinions aside and just give you some information to consider. For the sake of this article, let's say you want to borrow $20,000.00 for ten years. Your have secured an interest rate of 6%. Your payment would be $221.94/month and your total amount paid at the end of the loan would be $26,632.80. Now, let's say you have $20,000.00 in investments drawing 4%. At the end of a ten-year period that investment would be worth $29,604.89. These two figures may be much closer than you might have thought! In this case, despite the rate on the loan being 2% higher than the rate of return on your investment you would be better off taking the loan and leaving your money in the bank untouched! If you consider all the factors like interest rates, income tax rates, the second home deduction IRS Tax Publication 936, nest egg security, etc., you may determine that financing is actually your best option.
I hope that you have found this article helpful and that you feel more educated about the "Ins and Outs of RV Financing". If you have additional questions, please contact us call, text, or email or stop by and we will be happy to help you out!