In 2017, wholesale RV shipments reached their highest level ever, topping 500,000, according to the RV Industry Association. Part of the reason for the rise in demand for RVs is due to millennials, who are looking for ways to enjoy a mobile lifestyle by bringing home along with them.
If you’re interested in hitting the open road with an RV, you probably need a loan. After all, a recreational vehicle or motorhome is as expensive as a car — and even a house. Chances are, it will be difficult to save up enough to buy an RV outright with cash.
Here’s what you need to know about how to get an RV loan.
How does RV financing work?
Most RV loans are available for between 5 and 15 years, although you might also be able to finance for 20 years, depending on how expensive the RV is. If you go to a bank or credit union and ask to borrow money for an RV, you might be subject to greater scrutiny.
The reality is that a recreational vehicle is considered a luxury item, and some RVs depreciate rapidly, much like cars. As a result, you might have a hard time qualifying for an RV loan without good credit and a large down payment.
Types of RVs and Motorhomes
Choosing the right RV depends on how you intend to use it. If you plan on using it for a few week-long or weekend trips per year, you may want to consider something smaller and less expensive. However, if you’re planning on living in it, you may want something bigger and more expensive.
Here are the are four main types of RVs and motorhomes:
- Class A: The largest and most expensive RVs on the road. A great choice for full-time, dedicated travelers.
- Class B: Often referred to as the camper vans, Class B vehicles are easier to drive and much less expensive than Class A’s.
- Class C: Midsized RVs that range from 23 to 36 feet. Class C campers have extra sleeping space or storage area above the driver’s cab. They’re usually a little more expensive than Class B’s.
- Travel trailers: A travel trailer is an RV that is towed by a truck, van, or SUV that can handle the weight capacity and are usually cheaper than the others.
Other types of RVs include popup campers, teardrop trailers, hybrid trailers, and fifth-wheel trailers.
How much can you afford?
Before you start shopping around for an RV loan, you need to know exactly how much you can afford. Just like making any other major purchase, you want to be sure you can handle monthly payments.
Carefully consider the following factors as you decide how much RV you can afford:
- Income and cash flow: Think about your income and cash flow. How will you make your RV payments? Do you have enough income to make your monthly payments with ease? What might you have to give up to keep your cash flow smooth?
- Living situation: Consider your reason for buying an RV. If you plan to buy the RV as a supplement to your situation, using it only for vacations, you might not be able to afford an expensive RV. On the other hand, if you plan to use the RV to replace your current housing, you might be able to handle a bigger, more expensive RV because you won’t be making rent or mortgage payments.
- Current debt level: Before you go into debt for an RV, consider your other obligations. Do you have other debts taking a chunk of your cash flow? If so, it might make more sense to pay down some of your other loans before taking on RV debt.
Only get an RV loan if it makes sense for your situation and if you can afford it. And if you do finance, make sure you only borrow what you can afford. That might mean getting a smaller RV so you aren’t borrowing more than you can handle.
Getting the Best Rate on an RV Loan
Getting a good rate on an RV loan is important if you want to save money overall on your debt. Lenders will consider different factors when deciding what interest rate to offer you.
Market factors impact the rates you can get on an RV loan. You can get a pretty good idea of what RV loan rates are doing by looking at car loan rates. Additionally, you can also watch Federal Reserve benchmark rates and consider overall credit conditions to get an idea of which way the wind is blowing.
Your Credit Score
While market factors are going to influence your best possible rate, there are also personal factors that go into determining your RV loan APR (annual percentage rate). As with almost any other loan, your credit score is going to make a big difference. If you want to get the best offer, improve your credit score before you apply for an RV loan.
It’s possible to find RV loans with bad credit, but they are few and far between — and you have to be prepared to pay much more in interest over the life of the loan.
Your Down Payment
Lenders will also look at your down payment when quoting you a loan rate. For many consumers, it’s a good idea to put down at least 10% of the purchase price. However, some lenders might ask for more — and others will actually finance 100% of the cost of the RV.
The bigger your down payment, though, the lower your RV loan interest rate will be. If you plan to live in your RV and you currently own a home, you can see a big reduction in what you pay in the long run by selling your home and using a portion of the profits for a down payment.
With a bigger down payment, not only can you save on interest, but you also end up with a smaller loan, so your monthly payments are likely to be smaller.
Don’t forget to shop around for the best deal on your RV loan. Get quotes from two or three lenders before making your decision. You can also use a loan calculator to compare interest rates, terms, and fees. Then, choose the loan that works best for your situation.
Motorhome and RV Financing Options
Once you’ve figured out how much you can afford and which type of RV is right for you, it’s time to consider your RV financing options.
Financing an RV Through a Dealer
Many RV dealers offer financing and it can sometimes be easier to just do everything at the dealer. Sometimes the RV dealer can even offer the best loan options. Depending on the situation, you might have access to special promotions and pricing when going through a dealer.
Use the RV dealer in your comparison shopping scenarios. Visit your bank or credit union and get pre-approved for an RV loan before you start visiting dealers. You can use your pre-approval letter as leverage when you bargain on loan terms.
Additionally, it can make sense to visit other RV dealers, and even look online if you can. RV shopping is similar to car shopping in that you want to show different dealers what offers you’re receiving from others. This can help you get a better price on your RV, plus get you better financing options, especially if you have good credit.
Banks or Credit Unions
Getting pre-approval from a bank or credit union can also provide you with more choices when shopping for an RV. You can look at private-party RVs, rather than focus only on what’s in a dealer’s lot. Make sure you weigh all the options before moving forward with an RV purchase at a dealer (and using dealer financing).
If you don’t have the credit or income to qualify for a dealership or recreational loan, another option is a personal loan. This type of loan is easier to qualify for, but may not cover your RV purchase as most lenders have a maximum loan amount of $35,000 to $100,000.
Some lenders offer personal loans for borrowers with bad credit, with credit scores as low as 580, however, these loans also come with higher interest rates.
Do your research before making an RV purchase. Make sure it’s what you really want before you move forward, and shop around. Don’t forget to make efforts to improve your credit ahead of time and save up for a down payment to reduce the amount of debt you end up with.
An RV can be a great way to live and see the country. Just make sure you only buy what you can afford, and finance as little as you can get away with.