Financing an RV is a simple process, and there are models to fit anyone's budget, from folding camping trailers that retail for an average cost of $6,824 to conventional Class-A motorhomes with an average retail price of more than $140,000.
Before Purchasing an RV
The majority of prospective buyers have to rely on a lending institution to finance an RV purchase, which may be one of their largest investments. Most lending institutions will finance RVs up to 20 years (depending on the amount of the loan), which is instrumental in keeping the monthly payments affordable.
By considering every possible finance source, from paying cash to taking out a loan, you can determine what is best for you and your budget. By knowing how to compare loan terms, you can greatly reduce the cost of borrowing money. If you consider yourself a cash buyer, shopping for financing may not seem to be a concern. But you still pay extra costs when you pay cash - that is, the loss of earning power of the money you pay. Ask yourself how much money you will not earn from your savings account, real estate, stocks or bonds because you liquidated the asset to buy an RV. Also keep in mind that any income derived from liquidating an asset may incur a capital-gains tax. Or, if your money is in a bank certificate of deposit (CD) that has not matured, you will incur a penalty for early withdrawal. These are all the costs of paying cash.
While Buying an RV
Many dealers use a number of banks or finance companies and can orchestrate the necessary steps to set up a sales contract with the best terms available to the borrower. You also can check with your own bank or credit union; credit unions often offer their members the best rates in the industry. However, the term may not be as attractive as the dealer's sources, especially if the dealer does a lot of business with certain lending institutions. If you decide to go with the dealer, the finance manager will send your application to a number of lenders in search of favorable rates and terms.
Credit approval and interest rates are dependent on four primary factors:
1. Credit history
2. Adequate down payment (if you cannot qualify for a zero-down plan)
3. The ability to make payments
4. Proof of income
Most RV loans are simple interest loans with terms as high as 20 years, and many lenders offer tailor-made programs for special borrowers with offers such as "No Money Down" or deferred payment programs. Also, there are no prepayment penalties for paying the unit off early, no fees, and credit life insurance and extended warranties can be financed in the loan contract.
It's important to have some idea of your future RV plans before applying for a loan. If the rig you are planning to buy will eventually be traded for a larger or more expensive unit in the near future, try to finance it for a shorter period of time, or provide a larger down payment.
After an RV Purchase
Unfortunately, RVs depreciate (especially during the first few years) and, even after years of making payments, you might end up owing more than your rig is worth if it's financed for 144 months or more. If you choose to finance under a zero-down plan, keep in mind that the depreciation factor may be much more dramatic as it affects the balance on your contract. Also, RVs can be financed in individual or business names. One final benefit is that interest payments on an RV loan may be tax deductible. This benefit applies if the RV is used as security for the loan, and has cooking, sleeping and toilet facilities on board to qualify for the federal income tax second-home deduction, according to IRS code section 280A(f)(1). You cannot take advantage of this deduction if you already own a second home or another RV. You should consult with your tax adviser for more information on this finance benefit if you are interested.
There are several other legal issues that borrowers should be aware of when financing an RV, including the following:
Truth in Lending Act (Reg Regulation Z):
Reg Z requires creditors to provide written disclosures of the cost of credit and terms of repayment before you enter into a credit transaction. Most importantly, it requires creditors to disclose the dollar amount and APR of a transaction. Reg. Z is intended to promote the informed use of credit and to encourage consumers to shop for the best deal.
Equal Credit Opportunity Act ( Regulation B ):
Reg B prohibits creditors from discrimination in all phases of the credit process (based on sex, race, color, marital status, religion, national origin, age, or because the borrower receives public assistance). Fair Credit Reporting Act (FCRA): The FCRA governs credit reporting and credit infomation. It regulates how consumers can learn what is being reported to credit reporting agencies about them, how errors in credit reports can be corrected, and establishes limitations on who can obtain credit reports on you for legitimate and permissible purposes.