Getting Lost in America: How to finance a recreational vehicle
by Lucy Lazarony (staff writer for bankrate.com )
First published as the "top story", December 6, 2000, on the bankrate.com web site.
Purchasing a recreational vehicle is very much about attaining a new way of life. The rolling homes-away-from-home let their owners pick up and roam to their heart's content.
"It's the freedom and the comfort," explains Peter Scalf, RV owner and founder of RV Advice of the WWW. "It's basically like being at home wherever you go. You can take off. You can just hit the road. You don't have to have a real destination."
But before you can start on that journey, there's all kinds of financial maneuvering that needs to be done. Landing a good financing deal on a recreational vehicle takes some work.
First off, a recreational vehicle is considered a luxury item. You'll need good credit to qualify for financing.
"You have to have a better credit profile to purchase an RV than you do a car," says Howard Haskin, senior vice president and business development manager at Essex Credit Corporation.
"If you don't have good credit, you're probably not going to be able to get one."
The journey of a thousand miles.
Banks, credit unions and independent finance companies all offer RV financing. A list of RV financing companies is available on the Recreational Vehicle Industry Association Website. Financing can also be arranged at RV dealerships.
As with autos, you want to have a financing deal in place before shopping for your vehicle. That way the dealer will have to beat the interest rate on the loan to get your business.
"My advice to them basically is check with their bank first," Scalf says. "Shop around so you know what interest rates are, what the value of the coach really is. Check it out."
People get so excited about finally purchasing an RV that they're not as careful as they should be when it comes time to crunch numbers. Scalf has heard from people who end up paying thousands too much in interest. One reader learned that his RV was worth $10,000 less than the purchase price.
"They can get buried left and right," Scalf says.
Riding along with automobiles
Interest rates on RV loans are closely tied to auto loan rates.
"It's really similar because that's what the market bears for that kind of loan," says Karen Mason, director of publications for RVIA. "The auto and RV end up being very similar kinds of rates."
Bankrate.com lists national averages for new car loans as well as rates available in local markets around the country. At this writing, the national average for a four-year new car loan is 9.68 percent.
The rate on an individual's RV loan is determined by the finance amount, length of loan and a person's credit quality. Rates at Motorhomeloans.com range from 9 percent to 10.5 percent. At Essex Credit, interest rates on RV loans range from 8.75 percent to 13 percent.
"Not everybody is going to qualify for the best rate," Haskin says.
"You should do some homework. You should compare what's available in the market."
Lightening the load
A big down payment or a big balance can help drive down the interest rate on a loan. Most lenders require less than a 20 percent down payment and many lenders require a down payment of less than 10 percent. There are even some zero-down loans.
Accepting a loan with prepayment penalties may also nudge down the interest rate a bit. But you'll pay a price for paying ahead on one of these loans.
"It could be anywhere from $50 to 1 percent of the loan amount. So it could be $1,000," Haskin says. "In return for it, you may be able to get a better rate, so you want to look at those things."
Most RV loans are simple interest rate loans. With a simple interest rate loan, the amount of each payment that is allocated for interest is determined by the loan's unpaid principal balance, the loan's interest rate and the number of days since the last payment. The rest of the payment goes to a loan's principal.
Most RV loans come with 10-day grace periods for payments. So you have 10 days past a payment due date to get your check to the lender before a late fee, which could range from $10 to $50, would be charged.
Many RV lenders offer automatic bill pay. With automatic bill pay, a loan payment is automatically deducted from a bank or credit union account on a certain day of the month.
"If you're an individual that might be traveling a lot in an RV, that might be convenient," Haskin says.
Terms on RV loans typically range from 10 years to 15 years but can go longer. For larger loans, say $50,000 to $100,000 or more, many lenders will allow you to extend the loan term to 20 years.
RV owners are known for making steady, on-time loan payments year after year.
"Historically, RV loans have an extremely low delinquency rate nationwide. Generally, it's under 2 percent," Mason says. "The people who purchase these vehicles tend to be very reliable on loan payments."
You deserve a break
For most RV owners the interest on their loan is tax-deductible as second-home mortgage interest.
To qualify, the RV must be used as security for the loan and it must have basic sleeping, toilet and cooking facilities. Almost all RVs, from motor homes to van and truck campers to travel trailers, come with these facilities.
For more information on the tax deductibility of RV loan interest, contact the Internal Revenue Service. Copies of "Publication 936 - Home Interest Deduction " and "Publication 523 - Selling Your Home " are available by calling 1-800-829-3676 or by visiting the IRS Web site.
Once the research, number crunching and paperwork are done, RV owners can get down to the fun part.
"Enjoy your dream and your vacation," Scalf says. "You can get these little things taken care of".
This article posted to the Internet December 7, 2000
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