What is a recreational vehicle loan?

Traveling around the world in a recreational vehicle (RV) can be fun, but it often comes at a considerable cost. The price of an RV ranges from $10,000 to $1 million, depending on the type of vehicle you wish to purchase. If you cannot afford to pay cash, an RV loan is a possible solution.

But before taking out an RV loan, it is good to know the pros and cons of this type of loan to see if it is right for you.

What is an RV loan?

An RV loan is a type of lender that travelers can use to finance the purchase of an RV, motorhome or trailer. You can find these loans in a variety of places, such as banks, credit unions, and online lenders.

Although this type of loan is relatively similar to a car loan, the amount financed and the terms of the loan are sometimes more reminiscent of the mortgage process. This is due in part to the fact that recreational vehicles can be as expensive as a small house.

Secured loans for recreational vehicles and unsecured loans

A secured loan for a recreational vehicle requires the use of the vehicle as collateral, which means that the creditor can repossess the vehicle if the customer fails to repay the loan as agreed. Because the creditor takes less risk in this scenario, you generally benefit from a lower interest rate than an unsecured recreational vehicle loan.

Benefits

• Possibility of a lower interest rate
• Higher amounts compared to an unsecured recreational vehicle loan

Disadvantages

• The lending institution may confiscate the recreational vehicle if the loan is not repaid.
• Some lenders may require a down payment.

Unsecured RV loans, on the other hand, do not require the RV as collateral. If this type of loan is not repaid, the lender cannot seize the recreational vehicle without court approval.

For

• The creditor cannot take your boat if you do not repay the loan unless they have court permission.
• The application process is generally faster than for a secured loan.

Disadvantages

• Rates are generally higher than for secured loans for recreational vehicles.
• It can be difficult to get a loan if you have bad credit.

How do recreational vehicle loans work?

Recreational vehicle loans are usually secured, which means that the cost of the loan is covered by collateral, in this case the vehicle itself. Although the characteristics of each borrower may vary, the procedure is the same as for any other type of installment loan. The borrower obtains financing from a lender and repays the money over an agreed period, usually between two and 10 years.

Recreational vehicle loans may have specific restrictions on the use of the vehicle. Some lenders, for example, do not allow borrowers to finance a vehicle if it is their primary residence. When evaluating the different options offered by lenders, it is important to consider the type of recreational vehicle you wish to purchase and the eligibility requirements.

Dealer financing

Dealer financing allows buyers to make payment directly through the RV dealer. Once you have selected the RV of your choice, the dealer will likely talk to you about several in-house or contracted lenders.

This solution is ideal for those who want a simple process and prefer to handle all financial matters at once. It is also ideal for those who are confident, as it can be more flexible than traditional lending options.

Online lenders

Purchasing an RV through an online lender usually includes the option of requesting a loan pre-approval. This allows you to go to the dealership with a ready-made offer, speeding up the purchase process. When comparing online lenders, be sure to consider special features offered, such as rate reductions or the ability to skip a payment.

Ideal for: nervous borrowers who are unsure of the rates and terms they will get because of a potentially low credit score.

Loans from banks or credit unions.

Loans from banks or credit unions offer the longevity and convenience of an established financial institution. As with online lenders, pre-approval may be available. This option is particularly attractive to those who already have a relationship with a bank or credit union, as lower interest rates are likely to be offered.

Best choice: those who prefer an in-store experience or those who have a long-standing relationship with a financial institution.

Personal loans.

Obtaining a personal loan has the same advantages as the other financing options, but the recreational vehicle will probably not be used as collateral. Keep in mind that these loans generally carry higher interest rates.

This is the best option for a buyer who wants to finance a recreational vehicle or trailer more economically.

Current interest rates for recreational vehicle loans.

As of May 2023, interest rates on recreational vehicle loans range from 4.94% to 11.89% for borrowers with excellent credit. If you apply for a recreational vehicle loan with bad credit, you are likely to receive a much higher interest rate. In this case, adding a cosigner with good credit and a stable income can help you get a lower rate. You can also take steps to improve your credit rating before applying for the better rates.

How can I get a recreational vehicle loan?

Because the price is high, it is important to approach the process of purchasing a recreational vehicle loan with careful consideration. Pay particular attention to the rates, terms, and approval requirements available.

1. Establish a budget

RVs can cost up to $1 million depending on the type-Class A, B, C, travel trailer or fifth wheel-so it is essential to establish a strict budget to keep up with payments.

The age of the RV must also be taken into consideration. Compare an older second-hand model with a newer model that has more advanced features but depreciates more quickly. Finally, do not forget that the monthly cost is not limited to the current price.

2. Save for the down payment

Before looking at loan options, it is a good idea to save for the down payment, as most lenders require a 10% deposit and prefer a 20% down payment. The down payment not only guarantees acceptance of the loan, but also significantly reduces monthly payments and can lead to a lower interest rate.

3. Check your creditworthiness

Credit score is the most important factor in getting competitive rates on all loans, including RV loans. A score of 700 or more will get you the best rates. Before you leave, check your creditworthiness so you can apply knowing the expected cost. If your credit is insufficient, consider adding a cosigner to get a better rate.

4. Compare lenders

Once you have taken a firm stand on the type of loan that is best for you and what you can reasonably afford, you can compare lenders. Ask for pre-qualification from at least three lenders before you decide.

If you plan to take long trips, it can be easy to get excited and take out the first touring vehicle loan offered to you. But it is a big financial commitment and should be approached as such. Take the time to compare loan options so that your travel home remains yours for many years to come.

Frequently asked questions

What is the typical term of a recreational vehicle loan?

Recreational vehicle loans have longer durations than car loans because of their higher price. Most recreational vehicle loans have durations between two and ten years, but can range from one to twenty years.

Is a recreational vehicle loan the same as a mortgage?

It is not the same, but there are similarities if you choose to live in your RV.

What credit score is required for a recreational vehicle loan?

A score near or above 700 will guarantee you the best rates and terms. However, there is no minimum requirement for obtaining a recreational vehicle loan, as requirements vary from one lending institution to another.