Understanding Financing A Recreational Vehicle (RV)
Attempting to obtain a recreational vehicle (RV) loan in the current economy can be difficult if you do not have premiere credit. Even if you assessed your credit and made applicable changes to better your score and overall criteria, it may not be enough to secure a loan. An overall great down payment is one of the fastest ways to obtain approval where you lack in other criteria. Please do not let this deter you from applying for an RV loan. There are many additional factors lenders look for and RV dealerships will make every attempt to secure a loan for you. Trust me they want to make the sale! Below is an overview of loan expectations and RV financing.
Lending programs are available through banks, credit unions, and individual brokers. It is always best to try to secure a loan pre-approval prior to visiting an RV dealership. However, I have found that many lenders want to know RV specific information before approving a loan (i.e. a specific RV model). If you are unsure of the RV you want, you may want to research that information first. See our blog on this information first:
RV loan applications can be completed either online or through a dealership you choose. Lenders want to see the following criteria to approve a loan application:
- Good credit rating through one of three credit agencies (Equifax, Experian or TransUnion)
- Low credit card utilization
- Lenders prefer your credit card utilization to be below 30% of your available credit
- Good payment history
- Lenders want to see your credit card payment history has been made on time
- Limited to No Derogatory Marks
- This includes collection accounts, bankruptcies, foreclosures, civil judgments or tax liens
- Age of Credit History
- This is the average length of time your accounts have been open
- Proof of income
- Lenders want to see an acceptable debt-to-income ratio and this is one of the most common reasons to be denied your loan
- Liquid Assets
- Lenders want to see some kind of previous loan history (either through car loans, mortgages, and/or personal loans)
- If you have student loans from college, they want to see you paying these loans off
- A sufficient down payment between 10 to 20 percent
- When purchasing an RV, it is important to understand the need to provide a reasonable down payment. The moment you drive the RV off the lot, the RV loses a portion of its value. Providing a 10 to 20 percent down payment prevents the purchaser from becoming upside down in the loan. In addition, you will always have a bit of equity in the unit should you need to refinance or trade in the RV in the future.
Avoid these mistakes
- Don’t take the listed price at face value
- Many RV dealerships are noted for inflating prices between 30% or higher. Dealerships expect their buyers to haggle the price while still making a profit.
- Check your credit score
- It is always best practice to know your limitations prior to attempting a loan. A credit score of 640 or more is considered a good credit score. Any score lower than this will expect to pay more in interest costs.
- Just because you get qualified for more money does not mean you should
- Overestimating what you can afford as a monthly payment is poor practicing amongst RV buyers. You must factor in gas cost, maintenance, expenses, and additional monies you made need for your RV. Additional equipment or renovations also cost additional monies.
- Do not grab the first loan, shop around!
- The loan amount does not always include the additional taxes, dealership fees, add on warranties, insurance, and tag/title. Many loans can be 240 months (20 years) making the RV seem affordable; however, interest can make the overall loan much more expensive.
Full Time RV Predicament
Currently, loans provided to full time RV residents are considered far and few. If an RV is considered the buyer’s primary residence, many lenders do not have additional collateral to collect if a loan is not paid and places the buyer as a high-risk purchaser.
Many legislations and laws have made it very difficult to find financing for full time RV enjoyment. In past, buyers would “fudge” facts about their primary residence by using a family members or friend’s address. This has led to more qualifying paperwork to be completed prior to securing a loan. There are some lenders who will provide loans to full time RV families; however, they change constantly and you must maintain exceptional credit history.