HOW to BUY and INSURE an RV
January 24, 2007
Filed under Camping News
Before you look into RV financing you should really determine the type of RV that best fits your family’s needs and interests. Instead of letting price affect your initial search, let function be your guide; there may be some sticker shock in this process, but remember, information is power when it comes to finding financing. Reading the buyer’s guides and checking out the ads in magazines is a good way to begin your shopping adventure. You should also make use of the price-shopping power of the Internet.
Once you have a list of potential purchases, get your credit score at E-LOAN (/eloan.com/). Your credit history determines what loans you qualify for and the interest rate you pay. You need to know where you stand before your financing search begins.
A high credit score means you can expect the best interest rates. If you have hit some credit bumps along the way resulting in a bit lower score, you may benefit even more by looking into several lending sources.
With credit rating in-hand, determine how much per month you would like to budget toward the purchase of an RV. Resources like Essex Credit’s web calculator (/rv-loans.com/) can help. You can enter the loan amount, interest rate and term and it will give you the monthly payment. Using this calculator you can quickly experiment with different interest rates and terms to see how these effect monthly payments.
The last pre-shopping step is to decide on the length of term you would like to finance. In general, we recommend that you do not exceed 10 years. Longer terms mean paying more interest-not just in percentage rates, but in total interest amount as well. For example, if you borrow $10,000 at 5% for five years you will pay $1,322.74 in interest. Borrowing the same amount at the same interest rate for ten years will cost you $2,727.86 in interest – a difference of $1,405.12. That’s a lot of gas and groceries.
Shorter loan periods can help avoid being “upside-down” in a loan. Being upside-down means that you owe more on the loan than the vehicle is worth due to depreciation over the years. Rather than having an asset that can be sold or traded in, you have a liability. If you sell your RV while you are upside-down, you will need to come up with more money to pay off the loan. It’s a no-win situation.
Another good reason to keep the length of the loan reasonably short is because your camping needs may change and that can change the type of RV you want to own. Longer-term loans make these changes and transitions more difficult.
Shop for the funding source that best fits you. While interest rates should be an important part of the equation, they are not the only indicator of what makes a good fit for a loan. You may find that the loan with the best interest rates requires too large a down payment. Or perhaps the monthly payments on a longer-term loan would better fit your monthly budget.
Also, be sure to ask about any loan fees that may apply. These fees, sometimes called “origination fees”, increase the cost of the loan.
We did a little loan shopping on our own using /Bankrate.com/. Its researchers found rates on new RVs ranging from 5.25 to 15 percent in a recent survey. We also talked with industry finance experts, and here’s what they had to say:
o “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,” said a spokesperson from Selco Community Credit. For more information on credit unions contact Credit Union National Association, by visiting /cuna.org/ or calling 800/356-8010.
o “One of the advantages to our company is that we loan our own money so we can set our own programs,” said James Barron, Marketing Director of Essex Credit. Unlike most other direct loan companies with loans starting 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 call 866/377-3948.
o A representative from US Bank pointed out “…some banks offer up to a 1-percent interest rate reduction with automatic payment from your bank account,” said. Give your bank an opportunity to explain other loan advantages as well.
Dealer arranged financing might 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 loan terms they offer are competitive.
But remember this: It’s in the best interest of dealers to help customers arrange financing. It is not, however, in the best interest of consumers for dealers to make money on the back end of the deal by increasing rates in a practice known as “participation”.
Buying an RV can be very rewarding if you plan ahead and go in well informed. It’s well worth the effort on a purchase of this size. Knowing that your family is enjoying your RV at the best possible value will make it all that much more rewarding.
Choose the Right RV
o RVs vary by the number of people they will sleep. If the trailer sleeps eight, but you’re only four, ask yourself if you really need the extra room (and cost).
o Families with younger children may need to think in terms of where the kids will take a nap.
o Families with older kids may need to accommodate teens that stay up later and sleep in longer than their parents.
o Grandparents may have the little ones along only occasionally so fold-down beds would work fine whereas a bunk bed model may be better if the grandkids are along on most trips.
o Other camping related activities may be a factor. For example, a boat on a trailer would suggest a camper or motorhome rather than a travel trailer. ATVs may need to be in the tow vehicle, in a trailer behind a camper or motorhome or in a toy hauler unit.
o Bigger may not always be better. If your favorite camping spots have narrow, winding roads and limited room, a 35-footer won’t do. On the other hand, it may take some size to get the features you really want like a private bedroom for the parents.
o Fancier may not be better. One year my hunting partners got tired of me insisting they take off their muddy boots before entering. They also said my hunting vest clashed with my cleaning apron. Even with my precautions, my wife was not happy with the condition of the carpet when we arrived home.
o 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 that restrict what can be parked on the street or in your driveway? What off-site RV storage is available in your area and at what cost?
o 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. The sum of the loaded vehicle weight of the truck and trailer can’t exceed the GCWR. If you have a small tow vehicle, you will need to look at small trailers that it can successfully tow or, of course, upgrade to a new and larger tow vehicle, which is a whole new financing hurdle.
“Second Home” Tax Savings
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 > finance and accounting > personal finance > loan calculator. This excellent tool, which uses Microsoft Excel, 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 effect your monthly payment and overall costs. This is very valuable information for budget planning, determining how much RV you can afford, evaluating interest rates and deciding on a loan period. Loan calculators are also available at /eloan.com/.
Your credit report is a record of your payment history. The purpose of a credit report is to help lenders decide what type of credit risk you are. Information about your past loan and credit/charge-card account activity is stored in a consumer credit database. Your credit score is determined by the information found in your credit report.
Your credit score is a number that represents your credit at a point in time. Your credit score is based on your credit report, which is available from /myfico.com/, /experian.com/, /equifax.com/ and /transunion.com/.
Higher scores translate into better chances for loan approval. Higher credit scores also increase the likelihood of a better interest rate. A credit score may not be available for consumers with very little credit experience.
Basic Insurance Lingo
o Deductible: The amount an insured person must pay before the insurance company pays the remainder of each covered loss, up to the policy limits.
o Collision Insurance: This covers loss to the insured person’s own vehicle caused by its collision with another vehicle or object
o Comprehensive Coverage: Covers damage to a vehicle caused by an event other than a collision or overturn, such as fire, theft, vandalism and falling objects
o Liability: Covers you in the event you are found at fault in a lawsuit.
o Premium: The amount of money you pay for insurance.
Insurance for your RV is like the rest of the emergency gear you take camping-you gotta have it and hope you don’t need it. Finding the right RV insurance takes a little research, which can pay off big in savings on premiums and, heaven forbid, collecting on a claim. Here’s a good place to start:
MAKE THE CALL
For some owners of travel trailers and campers, insurance shopping can begin and end with calling the agency that handles their auto insurance.
“If your camp trailer is something you could dispose of financially, you wouldn’t have to do anything,” says Farmers agent Rick Jackson. “You could just hook it up to your truck. As soon as it’s hooked up to your truck it’s insured by your vehicle for liability purposes.”
“But if you want damage coverage for the trailer whether it be from an accident, wind, hail, lightening, theft, or any kind of peril; then we would endorse it (add it as an addendum) on your truck policy. What that does is makes insuring your RV very inexpensive because you’re already paying for the liability portion through your tow vehicle,” says Jackson.
But there can be a lot more to RV insurance than what you learn from your auto agent. There are some RV insurance specialists, which offer policies that can be very different from auto coverage. In the end, your coverage should fit the type of RV you have, the way you use your RV and even your personality.
“That’s because”, as Eric Westphal, National RV Product Manager for Progressive Insurance, puts it, “It’s not an auto. You’re going to use it differently and you are going to need different protection.”
INSURANCE SHOPPING LIST
Here’s a list of items you should consider including in your policy:
o Make sure your coverage meets the requirements of your state. In general, if your RV has its own motor, you will need liability insurance. Some states require higher coverage amounts as the Gross Vehicle Weight Rating (GVWR) increases.
o To protect their collateral, lenders usually require insurance that repairs or replaces the RV in the event that is damaged or stolen. “With full replacement coverage, if you were the original owner of the vehicle, camper or trailer and you’re in the first five years of the unit’s life we’ll get you a brand new one,” says Lev Vaysman, Account Manager/RV Marketing of GMAC Insurance (/rvinsurance.com/).
o “If a guest, invited or otherwise, is injured where your RV is set up and you are found to be negligent (or responsible) you need coverage,” says Westphal. “For example, a typical auto policy would not cover you if your dog bites someone while they are visiting your campsite”
o The personal property and other gear you bring along inside the RV needs to be covered, too. It’s not insured through your normal car or homeowner’s insurance. “If you get into a collision and your personal property is destroyed, that would be excluded by your homeowner’s policy because there’s no provision for coverage of property damaged by a collision-homes don’t collide,” says Monique Thibodeaux, Director of Marketing with RV Alliance America. If you have what many RV insurance companies call “personal effects coverage,” your property will be replaced.
o Generally, higher deductibles mean lower premiums. The downside is that if you have a claim, the insurance company does not pay for the deductible amount of the claim. You’ll have to decide if you want to avoid out-of-pocket expense by paying higher premiums.
o “If you have added your RV to your auto policy, you’ll typically have the same liability limits for both vehicles,” says Thibodeaux. “While that limit may be appropriate for a car, it may not be enough to cover the accident damage for a large RV.”
o RVs are large vehicles and incur higher emergency towing costs. Most specialized RV insurance will make tow insurance available as well.
o During the off-season, some companies such as GMAC Insurance will allow you to temporarily suspend your liability and collision coverage while your RV is in storage. You save money.
PEACE OF MIND
Some RV owners will take more risks than you are willing to live with. They figure the savings in premiums are worth the gamble of not having some types of RV insurance coverage. Others calculate that the loss would be too much of a financial burden. For them, increased coverage means decreased anxiety.
While many of the decisions associated with RV insurance have to do with dollars and cents, remember that you are also purchasing peace of mind while you are enjoying the camping life.
Check with your insurance provider before leaving the U.S. to make sure that your RV is covered for international travel. Some policies automatically extend comprehensive and collision coverage to Canada or Mexico but must be combined with the purchase of a secondary liability policy specific to that country. Contact: Progressive (800/539-7415; /progressive.com/) Sanborn’s (800/222-0158; /sanbornsinsurance.com/), Oscar Padilla (800/258-8600; /mexicaninsurance.com/) or Mexpro (888/467-4639; mexpro.com)
RV Insurance Sources
Progressive: 800/539-7415; /progressive.com/.
RV Alliance America: 800/521-2942; /rvaa.com/.
GMAC Insurance: 866/646-1755; /rvinsurance.com/.
Good Sam Club’s National General: 800/234-3450;/goodsamclub.com/.
Foremost Insurance Company: 800/237-2060;/foremost.com/.
AARP Insurance: 800/541-3717; /aarp.com/.
Explorer RV Insurance: 888/774-6778; /explorerrv.com/.
RV America Insurance: 800/400-0186; /rvinsurance-coverage.com/.