How to Find the Best RV Loan Rates and Financing Terms
Buying a recreational vehicle (RV) without first shopping around for low RV loan rates is like buying one that lacks a kitchen, bathroom or bed: you might still enjoy your vehicle, but you sure won’t enjoy it as much.
That’s because the difference between a good rate and a bad one can be considerable. And that translates directly into the monthly payments you will be making. The savings you make on your loan could translate into more – and more adventurous – trips in your RV with more vacation treats thrown in. Or, at the very least, a more comfortable life while you are at home.
All you have to do is take a little time to seek out the best RV loan rates.
Average RV Loan Rates
RV loans are closely related to auto loans, and, just like those, the rates charged on them vary enormously. That makes talking about averages difficult.
On the day this article was written, the sort of borrower lenders love (someone with a great credit score and not too many other debts) might have paid an annual percentage rate (APR) of a shade under 4.0 percent for a loan of $50,000 over four to six years. But, if you want to borrow less than that or for longer, expect to pay a higher rate. If you are someone lenders typically do not love, expect to pay more. Over 15 percent APR is not uncommon for subprime borrowers and that is far from the ceiling.
Almost all RV loan rates move up and down with the Federal Reserve’s changes to its interest rates. When it hikes, the base rates lenders set rise too, usually in line with the change. This applies continually to the monthly payments on variable-rate loans. But, if you opt for a fixed-rate one, only hikes before you apply will affect how much you pay. Read on for more on variable-rate vs. fixed-rate loans.
Typical RV Financing Terms
There are a whole lot of lenders out there, and you might just find one that is more flexible than the following guidelines suggest. But, as a rule, RV financing terms are offered anywhere between four and 20 years.
Generally speaking, the longer your loan lasts, the higher the rate you are likely to be offered. And the bigger the sum you borrow, the lower that rate is likely to be, though, that effect plateaus once you reach a certain level.
Most lenders will only offer finance over longer terms (say, 12 years and up) if you are borrowing substantial amounts, perhaps $50,000 or more.
Pluses and minuses of long loans
Long loans come with the enormous advantage of having much lower monthly payments than shorter ones, assuming the same sum is borrowed. But they have significant downsides too:
- The overall costs of borrowing big sums over long periods can be scary, even if you land a low interest rate. Make sure you know just how much you are on the hook for.
- Absent a really big down payment, there are likely to be prolonged periods when you owe more on your loan than your RV is worth. That can limit your options if you suddenly need to sell it.
- It is possible for borrowers to be still paying down their loans long after their RVs have been scrapped and crushed.
What Dictates RV Loan Interest Rates?
There are many factors that can affect the RV loan rate you will pay, including:
1. Your credit score
It is impossible to overstate the relationship of your credit score to your getting a good deal on an RV loan.
FICO, the credit scoring company, does not compare RV loans based on average scores. But it does do so for 60-month auto loans and those should give you some idea of the differences scores can make.
An Example: For someone borrowing $50,000 on one of those auto loans, FICO claims a great score (720 or more) would mean payments of $913 a month, while someone with a bad score (589 or under) would, if approved, pay $1,195. The creditworthy borrower would pay a total of $4,793 in interest over those 60 months. The other would pay $21,720.
Those are nationwide averages. They are also big sums, and they will just get bigger the more you borrow and the longer you borrow for.
Make Your Score Better: Unless your score is already in the very top bracket, it is well worth trying to improve it before you apply for a big loan, such as one for an RV. That is because many lenders use score ranges to determine the RV loan rates they will charge. And if yours is on the cusp between two ranges, adding just a few points (actually, just one might do it) could make a big difference to your borrowing costs.
If you need help improving your credit score, use the LendingTree credit score service, which allows you to discover your score and continuously track changes in it. It will also provide personalized tips on how to move yours upward. And it is entirely free.
If your score is currently not in the best shape, learn more at Bad Credit RV Loans: How to Get Approved.
2. Your other debts
Your lender is likely to want access to your household accounts and will look particularly closely at the proportion of your monthly income that goes to keeping up with other debts. This is a similar to the debt-to-income ratio calculation lenders use when approving mortgage applications.
The intention is to make sure you can comfortably afford the payments on your new loan, which is a concern you probably share. RV lenders are often less strict about the ratio than mortgage companies. But they may offer you a higher rate if they have affordability worries.
3. Whether you choose a fixed or variable-rate loan
If you opt for a fixed-rate loan, you can be sure your last payment will be the same as your first – and all the ones in between. The lender will take all the risks associated with future rate hikes while you enjoy peace of mind. However, that lender will charge you a higher rate from the start for that privilege.
Variable-rate loans, on the other hand, see you shouldering the risk. If interest rates in general rise, so will your monthly payments and the overall cost of your loan. But you will get a lower rate initially.
Which should you choose? Well, judging from the track record of professional economic forecasters, yours is probably as good as anyone’s guess. The decision has more to do with your personal tolerance for risk more than anything else.
4. Your residence
Probably most RV owners use their vehicles for occasional or frequent trips and vacations. But some want to live permanently in their RVs.
That can raise red flags for some lenders. You can see why: It is hard to enforce a loan agreement with a nomad, not least because of the inherent difficulties in finding him or her. So some lenders may not deal with permanent RV dwellers at all.
Others are more flexible, but they may want a slightly higher rate to cover the additional risk. As always, the solution is to shop around for a good deal with a sympathetic lender. It might also be wise to have a loan in place before you sell up and take to the road.
Finding the Best RV Loan Rates
Probably the worst thing you can do is show up on an RV dealer’s lot armed only with vague ideas about the loan you want. Many dealers see vehicle financing as a profit center and will try to engineer a deal that is a whole lot better for them than it is for you.
Your best move is to arrive with multiple loan offers already in place. If the dealer can match or beat your best one, fair enough. Otherwise, ignore the high-pressure sales pitch and stick with the loan that best meets your needs.
Do your research and comparison shop
Begin by reading RV Buying Tips: Get the RV of Your Dreams. This might help you choose an appropriate vehicle.
Start off your loan search by exploring your options. You will first need to know your credit score, but that (as described above) is relatively easy to discover. Then use an RV loan calculator to model your options. Try different ideas: a variety of loan amounts, terms, and RV loan rates.
Once you have an idea of what will suit you best, start shopping around for a loan. It is always wise to comparison shop to ensure you are getting your best RV loan offer. Shop as widely as you can, including your bank, credit union, or online loan comparison sites such as LendingTree. You should end up with a small pile of loan offers, and you can whittle those down to a short list.
Consider a shorter loan term
You are likely to get a better rate if you opt for the shortest loan term possible. And you will benefit from a short term in another way too: because you will be borrowing for less time, the total cost of your loan will be much lower, regardless of your rate.
Expect your dealer salesperson to try to upsell you to a more expensive, more desirable, and more luxurious vehicle than you can easily afford within your monthly budget. It is almost inevitable that is being made possible only by extending the term of your loan and paying considerably more in the end.
Just remember: Focus on the total cost of your loan. It may be future money, but it is real money you are agreeing to pay.
Negotiate your best offer
The offers you receive through LendingTree and from your bank, credit union, dealership, or other lenders are just that – offers. That means you are free to negotiate.
You will likely have both your RV and your RV loan for a long time. So it is worth investing time and effort to ensure you choose them carefully. After all, getting the wrong loan can reduce your enjoyment of your new vehicle.