Now that you are ready to purchase an RV, you need to understand how to finance the vehicle. You might think they are similar to car or truck loans, but they are slightly different. You can finance through the dealership, but you will not get the best terms or rates. Atlantic Horizon Capital has created this guide to help you make the right financing decision for your RV.
Types of RV Loans
There are two types of loans for an RV: secured or personal. A secured loan will use the RV as collateral to guarantee the loan. The lender can repossess the vehicle if you cannot make those monthly payments. With these terms, the lender has some guarantees about the loan. In many cases, if you have good credit, then you can expect a lower interest rate.
A personal loan is not backed by any type of collateral. However, these loans are riskier for traditional banks and lenders. For that reason, online lenders typically offer these loans. In some cases, the interest rates are higher. While that may be a problem for some borrowers, you can still secure a great rate for your RV loan with the right lender.
Can you buy an RV with an auto loan? If you want to buy an RV with these types of loans, you need to think again. Since recreational vehicles are more expensive than cars or trucks, you will need a larger loan. RV loans have a more in-depth underwriting process than standard vehicle loans. Additionally, lenders will look at other factors for the loan, such as net worth, cash flow, and liquidity. In many situations, these factors are not considered with an auto loan.
Who Offers These Loans?
As previously mentioned, you do not need financing from a dealership. You can find online lenders, credit unions, or banks for these loans. Banks and credit unions will offer secured loans, while online lenders specialize in personal loans. Online lenders can provide you with faster funding, but some traditional loans could be a better option to secure a lower rate.
Interest terms can vary. You may get an interest rate of 4% if you have good credit. Sometimes, you may be expected to pay interest rates as high as 17% with poor credit. Generally, most RV interest rates fall into the 4% to 10% range.
Speaking of credit scores, many lenders will require the borrower to have a score of at least 690. Keep in mind that these requirements can vary depending on your lender. Other factors will determine your RV loan’s terms and interest rates, including your debt-to-income ratio, employment history, and income.
Down Payment for an RV Loan
The total down payment percentage is based on the RV’s selling price before the title, tax, license, and loan processing fees. The amount of the down payment will vary from lender to lender. Typically, you can expect to put down at least 10% of the vehicle purchase price for a down payment.
Like buying a car, a new RV will depreciate as much as 20% when it leaves the dealership’s lot. With a long-term loan, you could owe more than it is worth. For that reason, you will want to make a bigger down payment on your next RV purchase.
Many of these RV loans have longer terms than a typical car loan. Since the price of a new or used vehicle is higher, many buyers can get longer terms to make the payment more affordable. Generally, the average RV loan will range from 10 to 15 years, but some lenders can even extend these terms for 20 years or more. Like any type of loan, if you can get terms for two to five years, you will pay less interest for the life of the loan.
RV Loans and Insurance
Many times, lenders will require proof of insurance to release the loan. However, some lenders will waive these requirements. You can get a loan without insurance, but it is essential to carry full coverage insurance. In the event of an accident or loss, the insurance company will reimburse you. In many states, it is a requirement for the vehicle to be insured. Always check with your local laws to see what is needed to drive your vehicle down the street safely and legally.
Titles, Registration, Taxes, and Loan Processing Fees
If you want to finance your title, taxes, registration, and loan processing fees, it is possible with some lenders. Financing these fees must meet your lender’s loan-to-value (LTV) guidelines. While most lenders prefer that you pay for these fees out of pocket, they are willing to help finance these costs.
The Next Steps
Knowing the basics of RV financing allows you to find the best rate for your needs. RV loans can be complicated to understand, but with the right amount of research, you can finance that next big purchase. One of the biggest challenges is knowing what you can afford. Most lenders recommend keeping the RV loan to less than 25% of your income. Without knowing your budget, you could be stuck making big payments for many years to come.
Along with financing, there are other costs associated with RVs. Always think about maintenance. RVs will have plenty of ongoing costs after the initial purchase. Plus, insurance rates can be higher for those vehicles. You will want to consider those factors when it comes time to purchase and finance your vehicle. All these costs can add up when you are buying an RV.
There are many ways to finance your next RV purchase. Usually, these loans have higher requirements for approval than a standard auto loan. You will want to work with a lender that specializes in these types of loans and can get you an excellent rate for your vehicle. At Atlantic Horizon Capital, we offer personal loans so that you can make these purchases. If you would like to learn more information about our RV loans, reach out to us.