How to finance a motor home or trailer
Dreaming of packing up and taking to the open road? A recreational vehicle may be just your style, but you will likely need an RV loan to realize that dream. RVs can be financed at a dealership or through a lending institution such as a bank.
Whether you want a luxury Class A motor home for your retirement years or are in the market for a little travel trailer for weekend getaways, take some time to compare lenders and get preapproved before you shop. The upfront effort will save money and hassle, and help you set off on that adventure in no time.
$7,000 to $200,000
Up to 20 years
Fixed or adjustable
10% to 20% is ideal
The federal government defines an RV as a vehicle built on a single chassis that is either self-propelled (motorized) or can be towed using a light-duty truck. They are 400 square feet or smaller and not used as a permanent dwelling.
The Internal Revenue Service definition differs slightly. As long as your RV has sleeping, cooking and lavatory facilities, it may be considered a residence for tax purposes. You can designate your RV as a primary or secondary home to reduce your tax burden, but note that primary residence RVs are more difficult to finance. Check with your tax adviser for advice.
The type of RV you purchase affects not only your lifestyle on the road but your financing options and loan conditions, as well. The two primary factors to consider are whether the vehicle is motorized or towable and whether it is new or used.
Motorized RVs are self-propelled vehicles and include Class A, B and C motor homes, vans and vehicle conversions. Class A motor homes are the largest, most luxurious RVs and are ideal for long-term living. Class B motor homes, known as campers, are smaller and more versatile. Class C motor homes are more modest than Class As in price and amenities, but more spacious than Class Bs.
Towables are hitched to a vehicle for traveling. They include travel trailers, toy haulers, fifth-wheel trailers and pop-ups. Travel trailers are the most popular towable as they suit most tow vehicles and range in size and cost. Toy haulers are travel trailers with a rear ramp that allows for storage and transport of motorcycles and other powersports vehicles. Fifth-wheel trailers are the largest and most upscale towables, while pop-ups are smaller, inexpensive foldable trailers.
RVs depreciate faster than other vehicles given their luxury status and resultant markup. If you want a starter RV or a camper for occasional use, buying pre-owned can save you money. Costlier, a new RV can offer customizable features with no prior mileage or wear, and you also are protected by the manufacturer’s warranty.
Many dealerships offer financing options at purchase, but most don’t issue loans. Dealerships work with their preferred lenders to offer financing, which may not be the best choice for you.
Before you head to the dealer, check with a few lenders on rates and terms for RV loans. Once you do a little research to find the best lender, get preapproved for an RV loan. This will save time, because you’ll know what you are eligible for, and can be a powerful negotiating tool at the dealership. Preapproval is typically based on the following factors.
Many RV loans are secured, simple-interest loans. This means the vehicle is used as collateral, and interest is only charged on the outstanding loan amount. The faster you pay off the loan, the more money you save on interest.
Interest rates can be fixed or variable, and depend on your credit score, the loan amount and loan term. Financing a used RV will usually carry a higher interest rate than a new vehicle.
As a luxury item, you will need a higher credit score to qualify for an RV loan compared to a typical auto loan. Many RV buyers have a credit score in the 700s. Work to improve your credit before applying for an RV loan to get the best rates.
Lenders typically finance up to 80 or 90 percent of an RV, depending on the purchase price and whether it is new or used. Remember that a larger loan amount typically takes longer to pay off and costs more in interest over the life of the loan.
RV loan terms typically range from 2 to 20 years. Most new RV loans are for 10, 15 or 20 years, depending on the loan amount. Loans for used RVs are usually no more than 10 years. The low monthly payments of longer-term loans may look attractive on the surface, but cost you more in the long run.
RVs depreciate quickly. If you finance most of an RV’s value, you risk owing more for the vehicle than it is worth — known as being underwater on the loan. Making a large down payment ensures that you have equity in the RV from the start, which makes you eligible for lower interest rates. A 10 to 20 percent down payment is ideal.
Dealerships are notorious for mark-ups, and once you’ve chosen an RV, you should negotiate the final price. Before you go shopping, search online for similar vehicles so you have an idea of purchase price. Although each situation is different, you can expect to knock off 20 to 30 percent of the manufacturer’s suggested retail price (MSRP).
Sale price and interest rates are not the only costs associated with an RV purchase. Budget for additional expenses due at purchase, such as:
Have an existing RV loan? If your credit score or income increased since you took out the initial loan — or you have a high interest rate — refinancing may save you money. Refinancing involves taking out a completely new RV loan with new rates and terms to replace your existing loan.
In addition to credit score and income, lenders evaluate the age and mileage on your RV to determine whether you qualify for refinancing. If you owe more than the RV is worth, you may be expected to pay the difference in value before being approved for refinance. Compare RV refinance lenders to see what options are available to you.