RVs can be an expensive purchase. For this reason, many people look into financing an RV. However, an RV isn’t quite a house and it isn’t quite a vehicle or trailer, so financing can become a little confusing for a first timer.
In this post on financing an RV, we’ll take the confusion away for you.
We’ll also give you actual examples that you can use to see how much it really costs to finance an RV.
5 Most Common Ways to Finance
One of the reasons financing can be so complicated is because there are so many ways to do it.
Here are the main methods people use to finance their RVs.
- Dealership Loans
- Bank Loans
- Personal Loans
- Home Equity Loans
- Credit Cards
1) Dealership Loans
Just like car dealerships, RV dealerships will often have their own financing options. Most dealership loans are actually just bank loans that go through the dealer first.
What I mean by this is that the dealership will take your information and forward it to the bank that they work with to provide financing options to their customers.
Often-times, the dealer will add to the interest rates so that they can gain a profit from both the RV as well as the financing of the deal.
For example, the dealer might get a 4% interest rate from the bank but charge you a 5% interest rate.
In this case, you end up paying more in interest than you would have if you had just worked with the bank directly.
This being said, some dealerships claim that they can get you better loan rates because of their relationship with the bank. Also, financing through the dealership might make the process faster and it does reduce the number of people you have to directly deal with.
2) Bank Loan
Many banks will finance RVs directly through you rather than through the dealership. To finance through a bank, just go to your bank and ask them what their options and interest rates are.
You can get pre-approval for a loan so that you’ll know that you have the money to buy the RV before you even head to the dealership.
The advantage of dealing with the bank directly is that you’ll be able to negotiate your own interest rate.
Additionally, you’ll know how much you’re approved for before you begin shopping for RVs. After all, there isn’t any point in shopping for $200,000.00 RVs if you can only get approved for a $50,000.00 RV loan is there?
3) Personal Loan
For those of you who don’t want to secure your RV loan with the actual RV, you can get a personal bank loan. Banks offer these unsecured loans to people with great credit or to people who are willing to pay much higher interest rates.
In most cases, it makes more financial sense to just get a standard bank loan but in certain situations, a personal loan may be better.
For example, if you’re buying a used RV you might find that you can’t get approved for a traditional bank loan.
In this case, the bank has decided that the used RV isn’t worth enough to be used as proper collateral. Switch to a personal loan and you won’t have to worry about this.
4) Home Equity Loan
For homeowners, a home equity loan may be the way to get financing for an RV. With home equity loans, you use the value of your home as collateral on your loan. If you’ve paid off a substantial amount on your mortgage or if it has appreciated dramatically since you purchased it, you may be able to get a very large loan for your RV purchase.
The downside to this type of loan is that if you fail to make your payments, you could actually lose your house. In this case, you’ll need your RV because you’ll no longer have another place to live in.
5) Credit Cards
For smaller RV purchases, you may be able to use your credit card. This can be done directly by just swiping it at the dealership or it could be done through a cash advance or courtesy check.
For example, my credit card companies sometimes send me checks that I can use for whatever I want.
These checks can be written out to the dealership or they can be written out to myself so that I’ll have cash in the bank to use for the purchase.
The upside to this type of financing is that your credit card company might offer you 0% financing for the first year. The downside is that this number can go all the way up to 10% or even 20% after the first year.
How Long Can RVs be Financed For?
Traditional dealership loans and bank loans on RVs usually range from 10 to 15 years.
This is twice the length of time of most vehicle loans and half the length of time of most home loans.
The length of personal loans and home equity loans can vary and you can get them for as little as just a few years or for as long as 10 or 15 years.
Credit cards, on the other hand, don’t really have terms and they can go on indefinitely or can be paid off right away. The longer you keep the loan, the more interest you’ll end up having to pay.
6 Clever Ways to Save Money On Financing An RV
Regardless of what type of loan you decide to use to finance your RV, there are ways to save money on your RV purchase. Here are a few things you can do that actually work.
- Put a bigger downpayment down.
- Get a lower interest rate.
- Make larger payments.
- Write your loan interest off on your taxes.
- Get a shorter loan.
1) Put a Bigger Downpayment Down
The best way to save money on financing an RV is to reduce the amount of money you borrow. This can be done by putting a large downpayment down on the RV when you purchase it. You can do this by saving up more cash before the purchase or by negotiating a better deal for the RV you’re trading into the dealership.
Even an additional $1,000.00 downpayment can save you a lot of money in the long run. For instance, if you get a loan for $20,000.00 for 15 years at a 5% interest rate, you’ll end up paying $8,468.57 in interest over the course of the loan. If you get a loan for $19,000.00 for 15 years at a 5% interest rate, you’ll end up paying $8,045.14 in interest. You end up saving $423.43 just by saving an additional $1,000.00.
2) Get a Lower Interest Rate
Negotiating for a lower interest rate can be another great way to save money on financing your next RV. This is especially true for more expensive RV purchases.
For example, a $200,000.00 loan for 15 years at a 6% interest rate will end with you paying a total of $103,788.46 in interest. This same loan at a 5% interest rate will end with you paying a total of $84,685.71. You end up saving $19,102.75 just be negotiating a lower interest rate.
3) Make Larger Payments
Get a loan without pre-payment penalties and you can make larger monthly payments on your loan each month.
This will reduce the amount of principle that has interest attached to it each month and it will reduce the length of time it takes to pay off your loan.
For example, if you finance a $100,000.00 RV for 15 years at a 5% interest rate, you’ll end up paying an additional $41,926.00 in interest after the first payment.
You’ll also take a full 15 years to pay it off. However, if you pay just an extra $50.00 a month on it after the first payment, you’ll only pay $38,008.00 in interest and you’ll end up paying the RV off 1.3 years sooner.
This is a total savings of $3,919.00.
4) Write the Interest Off on Your Taxes
If you’ve read our post titled, “Can RVs and Boats Qualify as Primary Residences“, you know that you can write the interest off on your taxes if you live full-time in your RV. In addition to this, you can also write the interest off on your taxes if you use your RV as a secondary residence.
In order to do this, you’ll just have to have an RV that includes sleeping, cooking, and toilet facilities. For more information on this, see IRS publication 936.
The RV interest can also be written off if your RV is being used for business purposes. The only issue with this is that you won’t be able to use your RV for personal use.
If you do, and you end up writing the interest off anyway, you could end up in trouble with the IRS.
5) Refinance When You Can
Just because you’ve already financed your RV doesn’t mean you can’t save money on financing. If interest rates are down or if you’ve paid a substantial amount of principle, you may be able to refinance your loan at a lower rate.
The downside to doing this is that you’ll probably have to pay a new loan origination fee to do so.
However, if you still owe quite a bit of money on the RV, it might be worth it to refinance. At the very least, you may be able to lower your monthly payments without paying any additional money in interest.
6) Get a Shorter Loan
The shorter the loan, the less you’ll end up paying in interest. We mentioned this in our post titled, “RV Buying Guide: 10 Clever Bargain Tips and Most Sold Models“, and here is the example we used in that post.
- 10-year loan at 5% interest on a $100,000.00 motorhome. Total interest paid is approximately $27,278.00.
- 15-year loan at 5% interest on a $100,000.00 motorhome. Total interest paid is approximately $42,342.00
The difference between paying the motorhome off in 10 years versus 15 years is $15,064.00.
As you can see, this is substantial savings on interest and this number will only go up as the size of the loan goes up.
- On a $200,000 loan at 5% interest over ten years, you’d end up paying a total interest amount of approximately $54,557.00.
- On a $200,000 loan at 5% interest over fifteen years, you’d end up paying a total interest amount of approximately $84,685.00.
The difference between paying this motorhome off in 10 years versus 15 years is $30,128.00.
More Financing Examples
Here are some more examples of RV loans with different loan amounts and interest rates that you can use to get a feel for what your RV loan might end up costing you.
|Loan Amount||Loan term in years.||Loan term in months.||Interest rate per year.||Monthly payments amount.||Total interest paid.|
As you can see, just changing one or more variable dramatically changes the amount of money that is paid in interest as well as the amount of money that is paid on a monthly basis.
You can cut the amount of interest you pay on a $25,000.00 loan in half by going with a 10-year loan over a 15-year loan and it will only cost you an extra $50.00 a month.
On a larger loan, you can go with a higher interest rate and a longer term which will double the amount of interest you pay but will drop your monthly payments down by over $200.00.
In the end, however, you’ll save the most money by making reductions. Reduce the amount of the loan, reduce the interest rate, or reduce the length of the loan and you’ll save big.
Reduce all three variables and you could end up saving yourself 10s of thousands of dollars in interest alone.
Other Financing Considerations To Consider
Carrying a loan and getting a loan has other implications for you to consider as well.
Here are some complications that care arise through the use of loans.
- You may have to get an inspection on your RV.
- You’ll have to carry more insurance on your RV.
- Your credit score will go down…and then up.
Even if you’re buying a brand new RV, your bank may still ask you to get a pre-purchase inspection on it. This is rarely the case on lower-priced RVs but it is often the case on RVs that are selling for more than $250,000.00.
Here you can see examples of what RV inspection typically costs.
You’ll also find this to be the case on used RVs as well.
When you finance an RV, the bank takes ownership of it and they want to know that you’re buying an RV that has real value. The older the RV, the more likely it is that they’ll want you to get it inspected. In fact, if the RV is very old, you may not be able to get traditional bank financing and you’ll have to get a personal loan or use a credit card to finance the RV.
This being said, it is probably a good idea to inspect an expensive RV or a used RV anyway. The fact that you’ll need to do it to get financed is just an extra incentive to do so.
Additionally, your bank or RV dealership will demand that you have full coverage insurance on your RV. This is because they want to know that you’ll be able to pay the loan off even if the RV is destroyed. You may end up having to get insurance coverage that you don’t want and you’ll most certainly pay more for it.
Here’s a list of what your RV insurance should (always) include.
Regarding Your Credit Score
In addition to all of this, your credit score will also be affected by the financing of your RV.
Other lenders will see that your level of debt has gone up and your financial situation will become riskier than it was before you took the loan out. This may hinder your ability to finance other items and you may end up paying higher interest rates on other purchases because of it.
If you’re looking for a job that disqualifies candidates based off of credit scores, you may also run into trouble as your score will most likely go down because of your new loan.
On the plus side, once you’ve successfully paid off a substantial portion of your loan, you may find that your credit score has gone higher than it was before.
This is because paying off the loan has established you as a responsible buyer. Now, you will qualify for lower interest rates and you may even be able to refinance your RV loan to save even more money. You may also find that your other bills go down as well as you now have the option to refinance some of them.
There are many different ways to finance an RV and all of them have advantages and disadvantages associated with them. The type of financing you do will be determined by your particular financial decision.
The best advice I can give you is to take your time and fully analyze all the different financing options available to you so that you can get the best deal.
Build your credit score up so that you can get the best rates, save up a big downpayment so that you don’t have to finance the entire RV and pay it off as quickly as you possibly can.
Taking these three steps will save you the most money and will enable you to fully own your RV as quickly as possible.