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Buying an RV? Understand the Financials

Don has been an avid traveler and motorhome owner for most of his life. He shares his experiences along with valuable tips for RV owners.

An RV loan can be very expensive, especially over time, so if you don't have a money tree...

An RV loan can be very expensive, especially over time, so if you don't have a money tree...

Understanding an RV's Cost

A lot of us have bought a car; it can set your head spinning, what with the dozens of forms the sales people are required by law to use, the numerous so-called “offers” the sales department places in front of you, and the amount you end up paying.

And for the newbie RV buyer, the process as well as the paperwork, although similar, can be even more confusing. So, it is critical that the newbie RV buyer knows what they are getting into.

The Realities of the RV Financial Process

There are enough differences between purchasing an automobile and an RV that a potential buyer should understand the facts about the RV financing process so that they can get the best loan possible.

Banks Don’t Like RV Loans

This is a pretty general statement but if you consider the typical problems they may run into, you can see why banks are hesitant to finance an RV. Only a few banks will offer any kind of loan on an RV, new or used.

You see, a loan on an automobile is easier to procure than a loan on an RV, for several reasons:

  1. The volume of automobiles sold is much larger than that of RVs.
  2. While a repossessed automobile can be offered for sale to a very large market of potential buyers, the market for a repossessed RV is much smaller.
  3. The market value of an automobile depreciates at a relatively steady rate, while an RV takes several large hits in value over the first three years after the sale.

For these reasons, many banks do not provide financing loans for any RV, and you will need the RV dealership to find you a bank that specializes in this type of loan.

RVs Are Financed for Longer Periods

Because RVs cost so much, it is common for new RV loans to give the buyer 20 years to pay them off. This gets the monthly payment down where the average person can afford the loan.

The loan company will also ask for at least a 20% down payment, in order to get the remaining amount of the loan low enough to cover the immediate drop in the value of the RV when it is purchased, as well as providing a monthly payment that the average RV buyer will feel they can afford.

Expect Higher Interest Rates

Because the market for an RV is small, the banks that do provide financing will usually ask for interest rates that are at least 2 or more points higher than what you will see with an automobile loan. So don’t expect to see those low interest rates you see offered by dealers for an automobile.

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Loans on Used RVs Are Hard to Get

If you’re looking at purchasing a used RV, you will find that loans are nearly impossible to find on ones that are over 5-7 years old; and if you do get a loan offer, the bank will invariably require a larger down payment along with a very high interest rate.

RV Values Drop

Because the retail value of a new RV drops the most when it is purchased—that is, when it becomes a used RV—and again when it takes its first year’s depreciation, the banks attempt to structure an RV loan offer so that there is still a decent amount of equity left on the vehicle at the beginning of the loan’s life.

But remember, the value of an RV will drop every year. The values you may see in the National Automobile Dealers Association or Kelley Blue Book reflect the effects of the economy, the popularity of RVs in a given year, and how well the marketable RVs are selling that year.

Scrap Value Reality

In the world of RVs, there is one reality that every RV owner should remember: When you get one of these 20-year loans on a new RV, this long loan period will leave you “upside down” in the RV's retail and trade-in values if you keep the RV for very long.

Really, the retail or trade-in value on even the most popular and highest-quality RV will eventually drop to a level below the remaining money owed on one of these 20-year loans.

So, recognizing and preparing for this fast-dropping value should lead a new owner to have a long-term plan for eventually getting rid of their RV and minimizing their loss at that time.

In fact, for most RVs, the value will drop down to what RV dealers call the “Scrap Value” around the time it becomes 15 years old.

Sure, if the RV is well maintained, it will still have some value: usually around 10% to 15% or less of its original list price. But most dealers do not want to have RVs this old on their lots because their margin is too low, and so they will often sell these old RVs off at auctions, if they do happen to take an RV this old in on a trade.

Financing Advice

Recognizing the facts listed here, there are several things the smart RV buyer can do when they start their search for a new RV.

  1. Of course, the best thing to do is put more money down on the purchase price to minimize the loan.
  2. Then, you might be able to shorten the term of the loan to 15 years or even less to reduce the loan size.
  3. Often, the more frugal new RV buyer might even purchase a new, yet cheaper RV in an effort to reduce what they will need to borrow.

But sad to say, most RV owners will just trade their used RV in for another new one every 5 to 10 years, thus avoiding that final financial hit until they are ready to get out of camping altogether.

This content is accurate and true to the best of the author’s knowledge and is not meant to substitute for formal and individualized advice from a qualified professional.

© 2020 Don Bobbitt

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