RV owners can refinance their loans, under specific circumstances
Steps to take when refinancing a recreational vehicle
- Ask questions of potential lenders — what are their terms, interest rates, fees and penalties?
- Make sure lenders have up-to-date information, such as your current loan balance, credit score and existing equity.
- Some lenders won’t refinance older RVs, or will refinance at higher interest rates, negating any potential savings.
- If your loan is underwater, a lender is unlikely to refinance.
If you have an auto loan, you may have refinanced it to obtain a lower interest rate or lower monthly payment. The same strategy is possible for owners of recreational vehicles (RVs).
If you’re looking into refinancing your RV loan, here are some things to consider as you determine whether a new loan makes financial sense.
Many types of loans, including home mortgages and student loans, can be refinanced, and RV loans are no different. When you approach an RV lender, ask the same basic questions: What is the loan term? What is the interest rate? Is a down payment required? Are there prepayment penalties?
Some RV lenders will offer interest rates as low as 3 percent for amounts between $5,000 and $100,000. Reducing your interest rate by a point or two can save hundreds or thousands of dollars over the life of the loan. Lenders may also offer unsecured provisions, so you won’t have to pledge personal collateral in case of default. Also look closely at down payments and prepayment penalties. Although many lenders charge a down payment or upfront fee to refinance, others waive this obligation. Similarly, a lender may waive prepayment penalties, so you can make additional payments or pay off the loan entirely at any time.
Consumers should compare loan products from multiple banks, online lenders and even the RV dealership that may have financed the original loan. Online lenders that specialize in RV refinancing may offer better deals. Compare and contrast the loans to discover whether there are any true savings. Upfront fees, including extended warranties, may offset any monthly savings you get with a lower interest rate.
Make sure a lender has the correct information regarding your current loan balance, credit score and the existing equity in your RV. This helps them process your request more accurately and efficiently. Also, if your RV qualifies as a primary or secondary residence, a lender may offer you a home equity loan. These products may or may not have advantages over refinancing.
Time is money
For those who own an older model, refinancing an RV may not be an option. A lender, for example, may not offer refinancing on anything that’s more than 10 years old. Other lenders may extend their limits to 20 years, but restrict the refinancing to motor homes, making travel trailers and fifth wheels ineligible.
Generally, it’s wise to refinance sooner rather than later, as the bulk of interest paid on vehicle and RV loans occurs within the first few years. If interest rates have dropped, or your credit score has improved since purchasing an RV, you can save a lot by refinancing. If your income has increased, refinancing to a shorter term may be profitable as fewer interest payments will offset higher monthly payments. Many lenders will also allow you to pay extra principal-only payments without a prepayment penalty.
There are reasons to not refinance, however. If you are underwater, meaning you owe more than the vehicle is worth, a lender is unlikely to approve your request. Similarly, if the RV is too old and has depreciated too much, a lender may either deny your request entirely or will only refinance with a higher interest rate, negating the savings of a shorter term.
If your current loan has a prepayment penalty, refinancing may not be helpful, as the penalty may wipe out whatever you save. Also, if you refinance to a longer loan term, you may pay more in interest charges than you’ll save with lower monthly payments. An alternate strategy is to refinance the loan, but continue paying the same monthly amounts, so the loan is paid off faster.
If you’re underwater, trading in your RV for something smaller and less expensive probably isn’t an option. A dealer will require the title on the existing RV to be debt-free in order to accept a trade-in. So, if the RV is worth $20,000 but you owe $25,000, you’re responsible for the $5,000 difference. Your best options in these cases may be to sell the RV and recoup any shortfalls out of pocket, or to keep the unit and accelerate your monthly payments in order to get back in the black.