RV loans are just another form of borrowing. That means that the same rules consumers follow when applying for a mortgage, personal loan, or credit card will apply when it comes to financing a recreational vehicle. However, there are some peculiarities RV buyers should look out for before signing a loan agreement.
Because RV loans are very similar to auto loans, some dealers may be tempted to use the same shameless scams that are widely deployed by their car- and truck-dealing cousins to fleece customers. This is unfortunate for the honest and reputable RV dealers who always act with integrity, but it does mean consumers need to be very cautious when negotiating finance deals with dealerships. According to the Center for Responsible Lending, two common scams among auto dealers include:
- Dealer kick-backs: The salesperson doesn't offer the interest rate the lender says the borrower is entitled to. The rate is inflated to the most the buyer will pay, and the lender and dealer share the extra profit.
- Yo-yo scams: The buyer thinks the deal has been struck and drives home in the new vehicle. Days or weeks later, the dealer calls the consumer back: The sale was conditional on the dealer being able to find someone to buy the loan, and nobody will. The consumer is pressured to pay a higher rate or return the vehicle.
Sometimes, the RV dealer might offer the cheapest loan. But the only way to be certain of that is to first shop around for good deals. Anyone who visits a dealer's lot armed with a competitive RV financing offer is almost bound to be in a stronger negotiating position than somebody who's unprepared.
RV Financing Tips
Before applying for an RV loan, it's a good idea for consumers to:
- Check their credit scores and reports. This might reveal errors that could be corrected. And, done far enough in advance, might spur some remedial action. Either could see a lower rate being ultimately offered.
- Read any credit agreements carefully and ensure they fully understand them.
- Consider in advance how affordable the loan is. Unlike with auto loans, most companies offering RV loans will require a buyer to complete a personal financial statement, so addressing affordability isn't optional.
- Examine the total cost of borrowing. Some RV loans can last 20 years and the amount payable in interest over such lengthy terms can be very high. If affordable, a shorter term might be beneficial.
- Remember that an RV is a depreciating asset. It will begin to lose value as it's driven off the dealer's lot and is unlikely to be valuable enough to pay off the loan balance for a very long time—maybe a decade or more.
- Explore alternative types of loans. For some homeowners, cash-out mortgage refinances or home equity loans might be more affordable choices than RV loans, though those have their own drawbacks. Weigh options.
- Consult with a professional or the IRS website regarding eligibility for deducting the interest on an RV loan. Most can deduct it as mortgage interest on a second home.
- Prepare to resist slick sales techniques. No matter how personable they are, most salespeople are primarily motivated by their own needs, not the needs of their customers. Especially with big-ticket purchases, such as recreational vehicles, it's vital for buyers to avoid the temptations sales staff might dangle.
- Be practical. Some RV buyers get caught up in romantic dreams of long trips on open roads. That's fine in most places, but not in the dealer's office. There, the buyer's mindset must be 100 percent business. In particular, buyers shouldn't reveal the monthly loan payment they can afford.
- Once the vehicle has been bought, set up automatic bill payments for the loan. Nobody wants to be bothered with administrative work when they're on the road.
Don't be put off by the business of buying and financing an RV. It's a brief and necessary evil that's well worth enduring. According to the Recreational Vehicle Industry Association, in 2011 there were a record 9 million RVs on America's roads. Why? The association's website quotes a recent University of Michigan study: "The steady gain in ownership reflects a strong and enduring appeal of the RV lifestyle." Oh, and cheap gas prices help!