Financing an RV is a simple process, and there are models to fit anyone's budget, from folding camping trailers that retail for an average cost of $6,824 to conventional Class-A motorhomes with an average retail price of more than $140,000.
Before Purchasing an RV or Travel Trailer
The majority of prospectve buyers have to rely on a lending
institution to finance an RV purchase, which may be one of their
largest investments. Most lending institutions will finance RVs up
to 20 years (depending on the amount of the loan), which is
instrumental in keeping the monthly payments affordable.
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By considering every possible finance source, from paying cash to
taking out a loan, you can determine what is best for you and your
budget. By knowing how to compare loan terms, you can greatly
reduce the cost of borrowing money. If you consider yourself a
cash buyer, shopping for financing may not seem to be a concern.
But you still pay extra costs when you pay cash - that is, the
loss of earning power of the money you pay. Ask yourself how much
money you will not earn from your savings account, real estate,
stocks or bonds because you liquidated the asset to buy an RV.
Also keep in mind that any income derived from liquidating an
asset may incur a capital-gains tax. Or, if your money is in a
bank certificate of deposit (CD) that has not matured, you will
incur a penalty for early withdrawal. These are all the costs of
paying cash.
While Buying an RV
Many dealers use a number of banks or finance companies and can
orchestrate the necessary steps to set up a sales contract with
the best terms available to the borrower. You also can check with
your own bank or credit union; credit unions often offer their
members the best rates in the industry. However, the term may not
be as attractive as the dealer's sources, especially if the dealer
does a lot of business with certain lending institutions. If you
decide to go with the dealer, the finance manager will send your
application to a number of lenders in search of favorable rates
and terms.
Credit approval and interest rates are dependent on four primary
factors:
1. Credit history
2. Adequate down payment (if you cannot qualify for a zero-down plan)
3. The ability to make payments
4. Proof of income
Most RV loans are simple interest loans with terms as high as 20
years, and many lenders offer tailor-made programs for special
borrowers with offers such as "No Money Down" or deferred payment
programs. Also, there are no prepayment penalties for paying the
unit off early, no fees, and credit life insurance and extended
warranties can be financed in the loan contract. The Good Sam Club'
s vehicle-financing program, www.GoodSamRVFinance.com, has
favorable interest rates for both new and used RVs.
It's important to have some idea of your future RV plans before
applying for a loan. If the rig you are planning to buy will
eventually be traded for a larger or more expensive unit in the
near future, try to finance it for a shorter period of time, or
provide a larger down payment.
After an RV Purchase
Unfortunately, RVs depreciate (especially during the first few
years) and, even after years of making payments, you might end up
owing more than your rig is worth if it's financed for 144 months
or more. If you choose to finance under a zero-down plan, keep in
mind that the depreciation factor may be much more dramatic as it
affects the balance on your contract. Also, RVs can be financed in
individual or business names. One final benefit is that interest
payments on an RV loan may be tax deductible. This benefit applies
if the RV is used as security for the loan, and has cooking,
sleeping and toilet facilities on board to qualify for the federal
income tax second-home deduction, according to IRS code section
280A(f)(1). You cannot take advantage of this deduction if you
already own a second home or another RV. You should consult with
your tax adviser for more information on this finance benefit if
you are interested.
There are several other legal issues that borrowers should be
aware of when financing an RV, including the following:
Truth in Lending Act (Reg Regulation Z):
Reg Z requires creditors to provide written disclosures of the cost of credit and terms of repayment before you enter into a credit transaction. Most importantly, it requires creditors to disclose the dollar amount and APR of a transaction. Reg. Z is intended to promote the informed use of credit and to encourage consumers to shop for the best deal.
Equal Credit Opportunity Act ( Regulation B ):
Reg B prohibits creditors from discrimination in all phases of the credit
process (based on sex, race, color, marital status, religion,
national origin, age, or because the borrower receives public
assistance). Fair Credit Reporting Act (FCRA): The FCRA governs
credit reporting and credit infomation. It regulates how consumers
can learn what is being reported to credit reporting agencies
about them, how errors in credit reports can be corrected, and
establishes limitations on who can obtain credit reports on you
for legitimate and permissible purposes.
This information is provided for use at your own discretion. Laws
in particular states may change from time to time, or federal laws
may change. You should check current and federal laws and
regulations yourself before you begin the process of purchasing
your next RV.
A carefully thought-out RV finance program can ensure many years
of Happy RVing!
