Recreational vehicles, also known as RVs, offer flexible and convenient travel options to explore parts of the country you’ve ever seen before. But before that, they are a significant investment for anyone looking to purchase an RV. While there are many options available, one of the best paths for purchasing is to sign up for an RV loan. Being that RV loans are designed to cover such a sizable purchase, the process of having your RV loan approved is slightly more complex than an auto loan.
What Do You Need to Qualify for an RV Loan?
Being that obtaining an RV loan can be complicated, it is important to understand what you, as a buyer, will need to qualify for these loans.
When it comes to qualifying for an RV loan, credit score is one of the most important factors. Most lenders will require a credit score of at least 680 or higher. 700 and up is even better. This is considered a good credit score and shows that the borrower is financially responsible and able to handle debt. However, some lenders may be more flexible with credit scores, and may offer loans to borrowers with lower scores.
Borrowers with lower credit scores may still qualify for RV loans, but you should be prepared to pay higher interest rates and fees. Lenders see borrowers with lower credit scores as higher risk, and therefore charge more to offset that risk.
Optionally, you could take steps to better your credit score before applying for an RV loan. Paying your bills on time, reducing credit card debt, and working with a credit counselor can get you back on track and ready to pay off your RV.
Source of Income
In addition to credit score, lenders will also want to ensure that you has a steady source of income and can afford to make the monthly loan payments. This means that borrowers will need to provide proof of income, such as pay stubs or tax returns. Lenders may also consider the borrower’s debt-to-income (DTI) ratio when deciding whether or not to approve a loan. The DTI ratio is a measure of the borrower’s monthly debt payments (auto loan, mortgage, alimony payments, etc.) in relation to their monthly income. A lower DTI ratio (35% and below) is generally seen as more favorable by lenders.
If you have a higher DTI ratio, it does not necessarily mean that you are exempt from receiving a RV loan. However, your RV loan terms may be more rigid and require you to pay more per month.
Depending on the lender and the borrower’s credit profile, a down payment may be required. The amount of the down payment can vary, but it’s typically between 10% to 20% of the purchase price. For example, if an RV costs $100,000, the down payment would be between $10,000 to $20,000. The purpose of a down payment is to reduce the amount of the loan and lower the risk for the lender. Borrowers who can make a larger down payment may secure better loan terms, such as a lower interest rate.
Keep in mind that you can always pay more than the minimum down payment and afford yourself a shorter loan period or less costly monthly payments.
Most lenders will require you to have comprehensive insurance coverage on the RV throughout the life of the loan. This is to protect the lender’s investment if that the RV is damaged or destroyed. In other words, you will need to provide proof of insurance to the lender before completing the loan application. Optionally, your lender can choose a full coverage policy for you. However, if your lender purchases a plan for you, the premiums are often higher and liability coverage is minimal at best.
To give you some idea of what to expect, the average annual premium for a Class A motorhome is between $2,000 and $4,000. For a Class B camper van or conversion van, the premium is between $1,000 and $2,000.
There are secured and unsecured RV loans. Should you opt to apply for a secure loan, you will have to use collateral. The RV itself will typically serve as collateral for the loan. This means that if you default on the loan, the lender can repossess the RV to recoup their losses.
For used RVs, to ensure that it is free and clear of any liens or encumbrances, the lender may require a title search and lien check. This is to make sure that there are no other parties who have a claim on the RV.
Shopping Around for RV Loans
As mentioned earlier, the requirements for RV loans can vary depending on the lender and the specific loan program. This is why it’s important for borrowers to shop around and compare offers from multiple lenders to find the best RV loan for their needs. By doing this, you can find a loan that offers favorable terms and fits within your unique budget. Be sure to check out online lending institutions, banks, and even credit unions to see what is available to you.
In addition to comparing loan offers, borrowers should also consider working with a reputable lender, like Atlantic Horizon Capital. A reputable lender will be transparent about their loan terms and fees, and will work with the borrower to find a loan that fits their needs. They may also offer pre-approval, which can help streamline the buying process and give you more negotiating power.
Finance the RV of Your Dreams Today
RV loans can be a great way for buyers to finance the purchase of a luxurious RV without having to pay for the entire cost upfront. However, to qualify for an RV loan, borrowers must meet specific requirements, including credit score, income, down payment, collateral, and insurance. Working with a reputable lender can also make a big difference when it comes to RV loans, which is why you should contact Atlantic Horizon Capital today.
The team at Atlantic Horizon Capital works with you to come up with a customizable RV loan, so you can get on the open road in your new motorcoach faster. Our loans and interest rates are also highly competitive. Start your online application today or give us a call to see if you are pre-approved at 609-365-1540.