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RV Loans & Financing 101

Mayra ParisNov 30, 2017

If you’re reading this, you’re thinking about buying an RV. Maybe the wanderlust has finally gotten to be too much and you want to hit the open road. How do you make your dream come true? Unless you are one of the fortunate few who can afford to buy a motorhome with cash, you’re likely looking at applying for an RV loan. Before you take the leap, read this article to find out more about financing an RV purchase.

RV Financing Terms

Since the cost of an RV is much higher than that of the average car—for example, new Class B motorhomes range from $40,000 to $80,000—, RV loan terms tend to be longer. The average motorhome loan has a term of 144 months, or 12 years, with some loans lasting up to 20 years.

A longer loan term usually means your monthly payment will be lower than if the loan term were shorter. However, it also means that more interest will be accrued throughout the years, especially if your loan has a variable interest rate. Therefore, you may end up paying much more for your RV by the time the loan term is over.

RV Loan Rates

Another aspect you must consider before buying a motorhome is the RV loan interest rate. On average, an RV loan with a term of 144 months, or 12 years, has a 5.29% APR, but rates can go from 4.79% to 7.49%.

Loan rates are determined by the current rates of the market, your credit score, the length of the loan term, the amount of money you’re looking to borrow, and the age of the RV. The amount you give as a down payment affects your RV loan rate too. If you make a higher down payment, the lender may be willing to give you a lower loan rate because they will be more likely to get most, if not all, of their money back. Watch out for low-down or no-down payment programs, which may lead to higher rates.

Financing an RV Purchase

There are several ways to finance the purchase of a new or used motorhome or RV. You may seek financing directly through the RV dealership. Dealers work as intermediaries between you and the lenders. This means that the interest rate you receive from an RV dealer may be higher than the one you get from a bank: dealers often mark up interest rates to make a profit from the loan. However, this rate can be negotiated down. Motorhome dealerships frequently have promotions as well, which feature interest rates that could beat your bank’s rate. And a dealer may be more willing to give financing to someone with bad credit, though at a higher interest rate.

You may also consider a bank or a credit union. These financial institutions provide interest rates for RV loans that are generally lower than a dealership’s because banks don’t mark-up rates. On the other hand, this means that the rate they offer you is usually a final offer that can’t be negotiated. Another benefit to financing a motorhome purchase through a bank is that, if you have an existing relationship with a bank or credit union, they are more likely to work with you should you fall behind on your loan payments. In addition, banks and credit unions may pre-approve you for a loan, allowing you to go to the dealership with a pre-approval letter than can help you negotiate a lower interest rate with the dealer.

Finally, an online RV financial institution is an internet-based company that specializes in financing motorhomes. They use the same lenders as the dealers, but since they have lower overhead costs, the markup on interest rates is lower. Working with these online companies gives you the convenience of applying for a loan online and receiving several offers without leaving home. Once you choose an offer, you can get approval within a few business days. These institutions may be more willing to finance your purchase of an older or used RV model. Some even finance ten-year-old or twenty-year-old motorhomes!

Keep in mind that many institutions will not finance RV purchases for people who intend to live on the motorhome full-time. Since the collateral on an RV loan is the RV itself, the lack of a permanent address increases the risk that the institution will not be able to recover the collateral if the borrower becomes delinquent. For this reason, many lenders simply don't even offer RV loans for full-timers.

Choosing an RV Loan

As you can see, you have many options for financing the purchase of your dream motorhome. Here are some tips to help you choose the right RV loan for you:

  1. Know your credit score: Before applying for RV loans, request a credit report from one of the three major credit bureaus. Loan applications do affect your credit score, so if you know your score isn’t high enough to get you approved for a loan, don't even apply. You'd also be in a better position to judge the fairness of your loan offers if you know how good your score is.
  2. Shop around: Don’t settle for the first loan offer you receive. Check what interest rates the different financial institutions can offer you so you can choose the best loan. Just remember to make all your loan applications within a short period of time—some sources suggest within two weeks. That way, the credit bureaus will consider all the loan applications as a single instance and protect your credit score.
  3. Look at the big picture: Many buyers focus on the monthly payment they will make on the loan. It’s wiser to focus on the length of the loan term and the interest rate. A lower monthly payment might mean a longer loan term and more interest paid in the end. You may end up paying more than the RV is worth.
  4. APRs and interest rates are different: The annual percentage rate (APR) of a loan is not the same as the interest rate. The interest rate only determines what percentage of the total loan amount you will pay as interest every year, while the APR factors in the interest rate as well as the fees you must pay for taking out the loan. When comparing loan offers, make sure you are comparing an APR to another APR, not an APR to an interest rate.
  5. Negotiate your rate: If the interest rate you’re being offered doesn’t satisfy you, don’t be afraid to ask for a better rate! The interest rate you will get from a dealer or an RV lender is almost always negotiable, so there is wiggle room for them to make a profit while still letting you get a good deal on your new RV.