New vs. Used RV Loans: What’s the Difference?
If you feel like there have been more motorhomes, travel trailers and other recreational vehicles on the highway lately, you are correct. RV sales are booming as people look for new ways to spend time outdoors and reap greater satisfaction from road trips.
If some form of life on the road appeals to you, and you decide to explore an RV purchase, prepare for lots of research. You will have to decide which size and style of RV suits your budget, how often and how far you plan to travel, and how you will handle housekeeping details like storing and maintaining your RV. (Many take up lots of space and do not fit in garages).
You will also face a critical financial decision: whether to buy a new or used RV. We will look at things to consider when financing an RV; the differences, advantages and disadvantages of new and used, and how those factors vary depending on the buyer’s budget and travel plans.
What is an RV?
Recreational vehicles range from mini trailers that cost a few thousand dollars and are towed behind a car, to ultra-luxury motorhomes that resemble large buses and can top $1 million.
In between are numerous sizes and styles of motor homes, trailers and even campers that fit into the beds of pickup trucks. Some travelers find RVs attractive because they offer greater comfort and flexibility on long vacation road trips compared with driving a car from one motel to the next. Having a “home on wheels” gives people more freedom to set their schedules and take spur-of-the-moment detours without worrying about reservations, check-in times, security lines and carry-on fees.
Sales rose 17% to about 504,600 RVs in 2017 and have been logging double-digit increases since bouncing back from the recession of 2008 and 2009. Sales have continued to grow this year, totaling 229,598 through May, up 9.8% from the same period last year, according to the Recreational Vehicle Industry Association.
Is the RV lifestyle for you?
Before committing to a major purchase that can rival the cost of a house, you should think carefully about how an RV would fit into your life. If taking your living quarters with you on long vacations, weekend getaways and to sporting events seems appealing, you might want to look into the costs, features and pros and cons of different types of RVs in order to determine whether you are really cut out for life on the road.
While RVs can be ideal for family travel while avoiding the hassles of flying, taking a train or squeezing into a car, they come with a new set of responsibilities. Some require special driver’s licenses. Whether you are driving a motorhome or towing a trailer you will have to learn special techniques for parking and navigating congested areas. You also need to research campgrounds and other RV-friendly facilities at destinations and along routes, and learn the proper way to hook up to outside water and electrical supplies after you park. You cannot necessarily drive a big RV up to the front of a convenience store or coffee shop as you would do in a car.
RVs, especially large models with electrical and plumbing systems, require specialized maintenance and repair beyond what your car mechanic can handle, so start looking for a qualified repair shop while you scout the market for the right trailer, camper or motorhome.
New vs. used RVs
Advantages of buying a new RV typically include the latest convenience features, from integrated USB charging ports to stylish kitchens that might be nicer than the one at home. You also get the benefit of a fresh start, knowing that other owners have not spent years fiddling with your rig and wearing it out. They typically come with a manufacturer’s warranty that covers fixes when parts and systems fail. But in general, you can begin racking up miles on a new rig without worrying about replacing worn parts.
Used RVs look best when viewed through the lens of depreciation. New RVs may cost as much as a house, but they lose value more like a car. RV groups like Camperreport.com, RVUSA.com and Outdoorsy.com estimate depreciation of 20% to 30% of the sticker price as soon as the customer drives off the dealer’s lot – a staggering hit. But the used buyer can look for a similar level of savings. There are also many RVs on the market that are just a few years old and have not been used to the point of wearing out.
People often sell their RVs when they decide to switch to a larger one, or find that they do not enjoy life on the road as much as they anticipated. These rigs are money-saving opportunities for shoppers. Finally, keep in mind that many RV sticker prices are set artificially high, and you should not be afraid to make a lower offer.
There’s a sometimes tricky balance between finding a less expensive used model and avoiding RVs that are too old to be truly reliable. Another quirk to remember is that some RV resorts will not accept RVs that are beyond a certain age. So make sure you are shopping for a rig that will give you access to all the destinations you wish to visit.
The older an RV gets, the more wear and tear they will experience and the sooner they might need pricey repairs. Be sure to check any prospective purchase for signs of damage from accidents, water leaks or other mishaps. Even rigs that look sharp cosmetically should be checked by a mechanic for mechanical conditions.
Use a checklist when inspecting a used RV and, if possible, use its owner’s manual to see which parts and systems will need attention soon.
Where to buy and finance an RV
Many of the dealerships that sell new RVs also have used models in stock. You can also search numerous online outlets like RV Trader and RV Hunter, your local newspaper classifieds or online resale sites like Facebook Marketplace or Craigslist for used models. Dealerships typically offer financing, so you should compare those with offers from your bank and other third-party sources.
Terms for RV loan rates generally range from about 4% to 10% whether the vehicle is new or used, and can go higher depending on the loan amount, the customer’s credit score and the length of the loan term.
Terms can be very long for both new and used RV loans — up to 240 months, or 20 years — compared with the typical car loan of three to seven years. As of this writing, Suntrust Banks Inc. advertised rates of 5.74% to 9.99% on five-year loans of $50,000 to $100,000. Good Sam Club, an organization for RV owners, offers rates as low as 4.74% for the same amount and five-year term. Retailer Camping World offers rates as low as 5.99% based on a term of 20 years. As an example, we looked at a new Class A motorhome with (generally largest, nicest category) for sale at Camping World for $103,989. Such a rig would cost $596 per month, based on a 20% down payment and a rate of 5.99% for 240 months. (All rates current as of June 27, 2018.)
Start by getting quotes from banks or credit unions, not the dealership. Dealers often have special promotional deals and can often complete the transaction faster than your bank. However, your bank might offer better terms, especially if they have worked with you on previous financing transactions. You won’t know until you ask and compare, so you should definitely get some loan offers from banks before walking into a dealership.
Window shop before you commit.
You can research the classifications and types of RVs, and get a sense of their price ranges by reading the RVIA site about trends in the market. Once you have a rough idea of the type of vehicle you want, it is worthwhile to visit a large dealership to see the different levels of accessories and upgrades that are available, and to simply see the vehicles up close.
As with buying a car, your financing rates will vary according to several factors including your credit score, current market interest rates and the size of your down payment (aim for 10% if possible).
Closing the deal
It is always smart to shop around for the best deal, whether from a dealership or a third party. If financing through your bank, be sure to get pre-approved for the RV loan and bring the paperwork when you visit the dealer. This makes shopping easier and helps speed the transaction. Having a confirmed deal in hand also could compel the retailer to make a better offer. Remember to keep negotiating until you are comfortable with the terms.