How to buy an RV
January 26, 2006
Filed under Camping News
Decide on the type of trailer that best fits your family’s needs and interests. Instead of letting price drive your initial search, let function be your guide. Decide just what you want to do with your RV. How many options and accessories do you really need? How many adults and children do you need sleeping room for?
Use RV manufacturers’ websites, customer-service representatives, and magazine articles to gather information. Compare the features of a handful of trailers that fit your needs. Only take price into account once you have selected a few trailers that have the features and products you truly require.
GET YOUR SCORE
Once you have a list of potential purchases, get your credit score at E-LOAN eloan.com. Know where you stand before your financing search begins. A high credit score means you can expect the best interest rates. If you don’t have a great score, you will benefit even more by checking out several lending sources.
Now that you have your credit rating in hand, you can take the next step. Determine how much you want to budget per month for your RV.
Essex Credit rv-loans.com can help. Its website has a calculator to determine how much you may be able to afford in monthly payments. You can also enter the loan amount, interest rate and term (length of time you will be financed for) and it will give you the monthly payment. Using this calculator, you can quickly experiment with different interest rates and terms to see how each affects monthly payments.
TERMS AND RATES
The next pre-purchase move is for you to decide the term for your loan. In general, we recommend that you exceed 10 years. One reason for this is because longer terms mean more interest paid — not just in rates, but in total amount as well.
While interest rates should be an important part of the equation, they are not the only indication of the right loan. You may find that loans with the lowest interest rates require too large a down payment. On the other hand, a low monthly payment on a longer-term loan may better fit your budget.
Another reason to keep loan periods short is to avoid being “upside down” (where you owe more than the vehicle is worth) in your loan. When this happens, rather than having an asset that can be sold or traded in, you have a financial liability.
Keeping the length of the loan as short as possible is also a good idea because your needs may change and you may wish to make a change in the type of trailer you own. Long-term loans make these changes and transitions more difficult.
Additionally, be sure to ask about any loan fees that apply. These fees, sometimes called “origination fees,” increase the cost of the loan.
TIME TO SHOP
We did a little loan shopping on our own using Bankrate.com. In a recent survey, their researchers found rates on new RVs ranging from 5.25 percent to 15 percent. We also talked with a few industry-finance experts, and here’s what they had to say:
- “The reason consumer advocates like Clark Howard specifically endorse credit unions is because our rates on items like cars, boats, campers and RVs tend to be much less than what you’ll find at a bank,” says Jim Mau, director of lending with Selco Community Credit Union. For more information on credit unions contact Credit Union National Association at 800-356-8010 or cuna.org.
- “One of the advantages to our company is that we loan our own money so we can set our own programs,” says Mark Johnson, Marketing Director of Essex Credit. Unlike most other direct loan companies whose loans start at $25,000, Essex offers loans starting at $10,000. You can fill out an application online rv-loans.com, by fax, by mail or on the phone at 866-377-3948.
- “Some banks offer up to a 1-percent interest rate reduction with automatic payment from your bank account,” says a U.S. Bank representative. Give your bank an opportunity to explain other loan advantages as well.
- Dealer-arranged financing can be a good option for some consumers. If you’ve done your homework before visiting your local RV dealer, you will know whether or not the terms they offer are competitive. However, don’t take the loan if the dealer is trying to make money on the back end of the deal by increasing rates in the practice called “participation.”
Buying an RV can be very rewarding if you plan ahead and begin this long and often frustrating process by being well informed. Getting a good deal and a good loan is its own reward. It’s well worth the effort to know you are enjoying your RV and sharing your campsite with family and friends at the best possible value.
CHOOSING YOUR NEW TRAILER
- Think about sleeping accommodations. Consider who can sleep on what size beds, and where the kids can take a nap.
- Families with teens that stay up later and sleep in longer may want to consider trailers with divided sleeping quarters.
- If kids are along only occasionally, fold-down beds are fine. A bunk-bed model may be better if there will be kids on all the trips.
- A boat on a trailer can be easily towed behind a pickup camper or motorhome. In most states, a boat can only be towed behind a fifth wheel, and some states require special licenses for double towing.
- If you’re really into powersports such as ATV riding, you should be looking at sport-utility or “toy box” trailers.
- Bigger is not always better. Think about the roadways to your favorite camping spots. Are they narrow, winding roads with limited room? On the other hand, it may take some size to get the features you really want like a private master bedroom.
- Fancy is not always better. My hunting buddies would get tired of me insisting they take off their muddy boots before entering.
- Consider the location where you will be parking your RV. How much room do you have? Will you need to expand your driveway? Do you have any neighborhood zoning regulations or covenants that restrict what can be parked near your street or in your driveway? What off-site RV storage is available in your area and at what cost?
- What are the limitations of your camper hauler or tow vehicle? Be aware of your vehicle’s GCWR (Gross Combined Weight Rating) — the weight specified by the manufacturer as the maximum loaded weight of a towing vehicle and its trailer combined. You also need to know your vehicle’s “tow rating” or Trailer Weight Allowance (TWA). Make sure your tow vehicle can handle the new trailer or camper before you get serious about buying your next RV.
If your RV qualifies as a second home, you may be able to deduct the interest on your loan from your federal taxes. According to IRS Publication 936, “For you to take a home mortgage interest deduction, your debt must be secured by a qualified home. This means your main home or your second home. A home includes a house, condominium, cooperative, mobile home, house trailer, boat, or similar property that has sleeping, cooking, and toilet facilities.” Depending on your tax and interest rates, you could save over $300 in taxes on a $10,000/five-year loan. For more information, go to irs.gov.
You can download a free loan calculator by going to office.microsoft.com and selecting templates, then finance and accounting, then personal finance and then loan calculator. This excellent tool allows you to enter loan amounts, interest rates, loan periods in years and start dates. In turn, it gives you a monthly payment amount, number of payments, total interest cost and total cost of the loan. You can easily change the loan amount, interest rate or loan period to see how these factors will affect your monthly payment and overall costs. Loan calculators are also available at eloan.com.
Your credit score is based on your credit report, which is also available from myfico.com, experian.com, equifax.com and transunion.com. Computer programs process the data found in your credit report to produce a score that predicts the likelihood that you will make your payments on time.