Written by: Anna Sibal
03/04/2011 12:45 PM
Is buying your own RV something you've been thinking about or are planning to do down the line? It's certainly more convenient to own an RV for your camping trips rather than rent them, especially if you go frequently, but price is always a factor in the decision to purchase. Not all of us can afford to simply pull a thick wad of bills from our wallet or write a check and drive away from the RV dealer's lot with the vehicle of our dreams. For those of us who are not as financially flushed, there's the option of securing a loan for purchasing an RV.
Securing such a loan is not, however, an easy matter. If you are not careful with how you make your RV loan, your RV will be a burden to you instead of a joy. To make sure that you are getting a good deal with your RV loan, you must first determine if you can afford to buy an RV at this point. Then, you have to decide what kind of RV you need and do some shopping around. Lastly, secure the loan first before you actually purchase the RV.
Determine your financial situation
Before you go shopping for an RV, you should first figure out if you can really afford to buy one. If you are swimming in debt, buying an RV even with a loan is out of the question. It will be difficult for you to find a lending institution that will even entertain your loan application.
You may also have to do some prioritizing. For example, if your kids are still at home, if you're still making payments on college funds, or if you're paying the mortgage on your home, you may want to reconsider buying an RV for another time. Bear in mind that buying an RV can be seen as similar to buying a second home. The typical down payment required on an RV is 10% - 20%.
There are a number of things that a lending institution will look for when you apply for an RV loan. Chief among these things are your credit score and debt-to-income ratio. Some companies require a minimum credit score. For example, KOA RV Loan Service requires a minimum credit score of 700. You can get a free copy of your credit report from AnnualCreditReport.com once a year.
Your debt-to-income ratio, on the other hand, is a measure of how much debt you have compared to your monthly income. You obtain this ratio by adding up all your monthly debt payments, such as your mortgage and credit card payments. Afterwards, you divide the sum by your monthly net income. Click here for a guide to calculating your debt-to-income ratio.
In short, you may need to do some checking on your credit scores before you apply for an RV loan and make the necessary repairs to your creditability. This task may take some time, but it is surely worth it if you want to secure an RV loan.
Read the FTC's general guide to vehicle financing.
Decide what kind of RV you need
While you are trying to figure out if you can afford to buy an RV, you should also start thinking about what kind of RV you need. Banks and other lending institutions are picky with the RVs on which they want to issue loans. They prefer buses or Class A RVs - the really big and expensive models. You may have to do a wider search if all you want is a travel trailer, a fifth wheel, a truck camper, or a Class B or C RV.
It's always best to check if the lending institution you are thinking of getting your RV loan from offers loans for the kind of RV that you want long before you fill up any application form. Doing this will save you time and effort.
Decide how much you want to borrow and how long you want to pay for your RV
Once you have determined your financial situation and the RV for you, you should have a good idea on how much you want to borrow. Most lenders have a minimum loan amount of $10,000 or more. The next thing to consider is the length of your loan. The more you put down towards the principal, the less you will have to repay in the future. Putting down a higher deposit will also translate to lower interest rates, monthly payments, and possibly even a lower price tag. Get a loan with the shortest repayment period that you can afford. Not only will this save you on costs in the long run, but it will also save you the agony of saddling this financial burden for many years. Loans are typically offered from 5 to 20 years.
Do some comparison shopping
Another sticky fact about RV loans is that lenders typically set you with a host of charges before releasing any amount of money to you. Some of these charges are overt (such as application fees), while some are hidden. Aside from these fees, lenders have different terms and conditions with their loans. Some lenders will charge higher interest rates than others. The majority of interest rates tend to be within the 4% - 8% range.
To get the best deal on your RV loan, shop around among various lenders. Examine what terms these lenders offer, what interest rates and fees they charge, their application requirements, and how they determine if you are worthy of their business, if possible. Don't hesitate to call up their customer service hotlines if you have questions that can't be answered via their website. Go for the lender with the most reasonable terms, the lowest rates, the least hidden fees, and the best customer service.
Here's a list of potential lenders:
Apply for the loan before buying the RV
It is always best to secure your RV loan first before buying the RV. In this way, you will have done your comparison-shopping and gotten the best loan available to you. You won't get stuck with loans offered by the dealer for financing your RV purchase.
Buying an RV is a great personal investment, but it also carries serious financial responsibility. Before you buy an RV, you need to make sure that you can afford it. And, if you decide to go for it, make sure that you do your research and get the best RV loan available to you.
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