RV Financing: How To Finance an RV
Whether you want the freedom to vacation more often, love the thrill of the open road or you’re interested in trading in your house for a more nomadic way of life, there’s no question that RVing appeals to many Americans, about 9 million households.
The perks of owning a recreational vehicle include potentially saving as much as 60% or more on vacation costs or potentially writing off the interest on your loan as a second mortgage. But the freedom of the open road also has its costs. Some of the largest RVs can cost $500,000 or more — and that’s not including the cost of maintenance, fuel, insurance and other expenses.
If you’re thinking about purchasing a camping trailer or motorhome, there are a number of factors you should consider before you take the plunge, including how to finance an RV. Most buyers need a loan to afford an RV purchase. However, rates may be higher and requirements more strict than what you may have found when you purchased other sets of wheels — like a car or truck — in the past.
- The costs of an RV
- Which lenders offer RV loans?
- How to apply for RV financing
- How do you negotiate an RV loan?
The costs of an RV
There’s more than the purchase price to consider when you’re estimating how much it will cost to own an RV. The answer to the question can vary widely and will depend upon several different factors, not the least of which is the type of RV you want to purchase.
RVs range from around $6,000 on the low end up to half a million dollars or more, says Kevin Broom, director of media relations for the RV Industry Association, a trade group for the manufacturers and suppliers of RVs. Most buyers wind up somewhere in between — the most popular and least expensive type of RV is a towable one. About 20% of new RVs shipped in 2017 were travel trailers with prices ranging up to $150,000. Motorhomes, on the other hand, are the most expensive type of RV, starting around $60,000 and running into the millions. New recreational vehicle unit shipments reached a total of nearly 245,000 as of July 2019; while that number is a 23% drop year over year, it still represents a lot of potential new RV owners.
With such a wide variety of choices and brands, there’s typically an RV out there that will fit your budget, family size and lifestyle. Use an RV loan calculator to help you figure out how much RV you can afford.
Which lenders offer RV loans?
Just like you have many choices when it comes to purchasing the perfect RV, there are plenty of options where RV financing is concerned as well. Broom recommends shopping around: “Work with your dealer, who will have RV financing resources. Credit unions and banks will have RV financing resources as well. Finally, you can search online for lenders who provide financing for RV purchases.”
You could fill out a single online form at LendingTree and receive several loan offers from lenders, depending on your creditworthiness.
Like other types of loans, good credit should lead to lower interest rates on your RV loan and perhaps less money down. “Typically,” Broom says, “you’ll be able to get a loan of some kind if you have an income and a large enough down payment.”
Of course, since RVs are considered luxury items, loans on these products represent a higher risk to lenders. (When people fall on hard financial times, loan payments for luxury items usually aren’t number one on their priority lists.) As a result, some lenders may charge higher rates or ask for a sizable down payment to help offset this risk.
Rates and terms
The actual rate you pay for an RV loan will depend on a lot of factors including your credit, the RV you’re financing, the length and size of the loan, and even the market itself. Here’s a look at some of the RV rates and terms available as of Sept. 5, 2019 to give you an idea of the range you might expect.
- Low advertised rates — As low as 4.39% for 48 to 60 months (4 to 5 years) for amounts of $150,000 or more on new and used (2008 models or newer) RVs.
- High advertised rates — Up to 17.95% for 60 to 180 months (5 to 15 years) for amounts up to $75,000 (these terms are for loans specific for those with lower credit scores)
Below are some highlights of the different types of loans you may be able to use to finance your RV purchase.
If you’re searching for a loan to purchase an RV, it’s a good idea to review offers from online lenders. Depending upon the condition of your credit, among other factors, an online lender may be able to extend you an affordable interest rate, in large part because online lenders have lower overhead costs than traditional brick and mortar financial institutions and can pass the savings on to their customers. Fast funding and an easy-to-navigate application process are two more benefits some online lenders have to offer.
A loan from an online lender can be an affordable way to finance your RV purchase. Lightstream, the online lending division of SunTrust Bank, offered RV loan rates as low as 4.29% to qualified borrowers as of Sept. 5, 2019. If you have credit issues, an online lender may still be willing to approve you for financing. Just expect to be charged a higher rate (potentially much higher) for a bad credit RV loan.
If you prefer in-person customer service, an online lender might not be your preferred choice. While many online lenders offer convenient online access, apps and phone support, face-to-face customer service is usually only available at a traditional financial institution.
Banks and credit unions
Many banks and credit unions offer recreational vehicle loans that can be used to purchase RVs. If you have an existing relationship with a bank or credit union, you might even qualify for a special rate discount. Bank of the West, for example, offers of discount of 0.25% if you set up an automatic payment from a Bank of the West deposit account when you close on the loan.
On the positive side, a loan from a bank or credit union can be an affordable way to finance an RV purchase. Interest rates on these loans can potentially start as low as the single digits — U.S. Bank offers rates as low as 6.25% on new RV loans for those with the best credit who also use auto pay. It’s also worth noting that repayment terms may be fairly quick: U.S. Bank requires a 48-month loan or shorter to receive the lowest rate.
On the negative side, if you don’t have good credit, you may have a difficult time securing affordable financing for an RV through a traditional financial institution. (A credit union might offer you a little more flexibility regarding your credit if you have a good track record with them.) Some banks and credit unions may also be restrictive when it comes to the maximum amount you can borrow for an RV and the length of repayment terms available, as mentioned earlier. We’ve seen maximums of $100,000, though lenders like USAA offer financing of $100,000 and up.
When you purchase an RV at a dealership, you may have the opportunity to apply for financing through multiple lenders who offer RV loans and have relationships with the dealer. If you have excellent credit (a FICO score of around 750 or higher), there’s a good chance you’ll be able to qualify for an attractive financing offer and perhaps even land some dealer financing incentives to boot.
The RV dealer wants to make a sale, so it may be motivated to extend you a competitive interest rate (especially if you let the salesperson and finance manager know that you’ve been rate shopping before you arrived).
You should pay close attention to the rate and fees you are offered for financing at an RV dealership. The salesperson may try to distract you by having you focus on the cost of your monthly payment or even increase your APR. The latter step is legal — the salesperson may pick the deal that offers the best incentive for them, not you. The only way to truly compare the cost of financing is to compare the interest rates and fees a dealership is willing to broker with those another lender will extend.
Other types of financing
In addition to the financing options listed above, there are other ways to fund the purchase of an RV.
- Personal loans — Some lenders, though not all, are flexible when it comes to how you opt to use the personal loan funds you borrow. However, maximum loan amounts tend to be relatively small, which can be especially problematic if you’re considering the purchase of an expensive motorhome.
- HELOCs — If you own your own home and have enough equity built up in the property, you could consider putting up your home as collateral to take out a home equity line of credit. Just keep in mind, if you use a HELOC to purchase an RV, but ultimately can’t keep up with the loan payments, you would be putting your home at risk. Also, if your home doesn’t have sufficient equity built up, you may not be able to borrow enough to pay for the RV you want to purchase.
- Peer-to-peer lending — A peer-to-peer loan can be a good fit for credit challenged borrowers who don’t need as much time to repay an RV loan. Borrowers with good credit can use peer-to-peer lending options as well, and may enjoy rates as low as 5.99% with 3 to 5 year terms. Yet like personal loans, your borrowing power might be limited. With LendingClub, for example, you can borrow up to a maximum of $40,000, if approved.
- Cash — When you’re buying an RV from a private seller, cash is going to be king. And that doesn’t necessarily mean handing over stacks of bills — you could bring a cashier’s check or use a service like Venmo or Escrow.com which will hold funds.
How to apply for RV financing
Applying for an RV loan works the same way as many other types of loan applications. To start, a lender will ask you to fill out an application that includes your personal identifying information (name, address, Social Security number, etc.) and your income. Your credit will be checked as part of the process. Finally, you’ll need to identify the RV you would like to purchase, how much it costs, and the size of the down payment you’ll be providing.
What the lender looks for in your finances
- Debt-to-income ratio — Lenders want to know that you can comfortably afford to pay your current bills plus any new loan payments, based on your income and debts. To figure out whether you can, they’ll examine your debt-to-income ratio (DTI), like lenders do when you apply for a mortgage or other loans. Most RV lenders want your DTI to be under 40%.
- Credit score and history — As we mentioned earlier, when you apply for an RV loan, or any other type of financing, having great credit typically works in your favor. Higher scores usually lead to lower rates. If you’re currently struggling with credit challenges, making an effort to improve your credit before you apply could potentially make a big difference in the cost of the RV loan you’re offered.
- Collateral — With recreational vehicle loans, like RV loans, the vehicle itself commonly serves as collateral to help you secure financing. However, if you’re willing to put up an additional asset (like your house) to secure the loan, you might get a better deal on financing. Just be sure you’re 100% comfortable with the risk before you agree.
- Down payment — A down payment could possibly help you to secure a better interest rate on a loan. “Generally speaking, a 10% down payment is the norm. But, 20% is within the norm as well,” according to Broom. “As with any loan, the exact terms vary based on an array of factors.”
What the lender needs to know about the RV you are financing
- The price of the RV — When you apply for any loan, the lender needs to know how much money you want to borrow. A lender will compare the size of the loan you’re asking for with your income and other debts to make sure you’re not overextending yourself financially.
- The RV’s value — It’s important to make sure you’re getting a good deal when you purchase a new or used RV, and that’s something a lender will want to know too. Some lenders may also require an RV inspection before approving your loan application, especially if you’re considering a used RV from a private seller. You can also search an RV’s value online at NADAguides.com.
- The age and mileage of the RV — Buying a used RV can save you money. However, some lenders may charge more to issue loans for RVs that are past a certain age because it can increase the risk of the loan.
How do you negotiate an RV loan?
Just like the sticker price you see on an RV from a dealership is probably negotiable, you may have some wiggle room when it comes to negotiating loan terms on dealership financing offers as well. Yet in order for this strategy to work, you need to do the homework and get quotes from multiple RV lenders first. The last thing you want to do is walk into a dealership unprepared.
Keep in mind, a dealership won’t necessarily offer you your best rate on an RV loan. Online lenders, banks and credit unions might extend you lower rates and better terms, especially if you have a good credit rating. You won’t know for sure unless you check.
When you shop around for the right RV loan, you can compare the rates, fees, and terms multiple lenders are willing to extend you side by side. Remember, it’s best to pay attention to the total cost of financing, not the size of the monthly payment. By doing so, you’ll be able to find the most affordable deal, possibly before you even step foot into the dealership. At the very least, you’ll know the best rate you can qualify for before giving the dealership a chance to beat the offer.