Financing an RV: What You Should Know

RV Loans: What are they, and how do they work?

RV loans can be used to purchase a new or used RV, motorhome, campervan, or fifth wheel. Since RVs range in size and build tier, the loans used to finance them likewise vary in size and terms. While not usually as large as a home mortgage, RV loans are also unique from automobile loans, as they are often larger and more complicated purchases. 

Most of the time, you’ll submit an RV loan application that your lender reviews and evaluates against their lending criteria. Your credit history will be pulled, and it plays a large role in your loan eligibility and interest rate. The size of your loan and the down payment you are able to provide also factor into your eligibility and rate. Lenders will also evaluate your net worth, cash flow/income, employment, housing, and other indicators of financial health. 

As a rule of thumb, the larger the loan, the stricter the documentation and credit verification process. To get started, here are some simple steps and considerations:

Determine your budget

This sounds easier than it is! With so many amazing RVs of all sizes with so many features out there, it’s easy to run out of budget very quickly. 😀 To determine your RV budget, think about how you plan to use it: Are you planning to live out of your RV full-time? Or is it for shorter camping trips? Do you need space to store specialty equipment for your job or hobbies? Do you need to be able to access remote locations or stay in cold climates? All of these things affect which features you need to prioritize, and therefore pay for, in your RV. 

Once you have an idea in mind of how you plan to use your RV, make a list of the things you “must have” and the features that are “nice-to-haves,” and research the average costs of RVs that meet those needs. You may also try reviewing your monthly budget and figuring out how much room you have for the extra expense every month. This should cover the cost of the loan, maintenance expenses, and fuel/storage needs. 

Don’t be surprised if you need to reevaluate your needs and expectations a few times before you pin down your budget, and you may find that establishing a range you can afford helps you approach the purchase with more confidence. 

Pull your own credit score ahead of time

Remember that your RV loan APR is heavily influenced by your credit score. While the size of the loan, your income, and the down payment also play a part, your credit score can make or break your financing. To make sure you qualify for the best rates, keep your credit as clean and clear as possible. 

Many traditional lenders, like your bank, may prefer to only lend to those with credit scores of 700 and higher. Others may specialize in RV loans for less-than-perfect (below 700) credit, but that usually means a significantly higher interest rate. Whether you go through with financing an RV or not, it’s always a great idea to consider ways to improve your credit score, including paying your bills when they are due and reducing your debt-to-income ratio. 

Save your pennies for the down payment

How much do I have to put down?

You are more than likely going to need to save at least 10% of the cost of your RV as a down payment, no matter how you choose to finance it. Some dealerships or lenders may even require 20% down, depending on the size and type of loan. You will want to closely check your budget and work with your lender, comparing whether you can afford a larger down payment or a change in cash flow over the course of the loan. A larger down payment will usually reduce your monthly payment and may decrease the interest rate and how much you ultimately pay on the loan. 

Of note, if you have less-than-perfect credit, a larger down payment can increase the likelihood of approval or decrease the interest rate, as it decreases the borrow amount and relative risk to the lender. 

Find a lender

RV dealership

Often, the easiest way to apply for an RV loan is through the dealership after you’ve decided to buy an RV. Dealership financing services will usually present you with a couple of options, sometimes through an outside lender or sometimes from an in-house lender. They will lay out how much you need to put down to qualify for a certain interest rate and what your payments could look like if you choose to forego or add options. You may find that financing your RV through a dealership gives you more bargaining power and flexibility on the price or APR. 

Traditional lender/online

You can also go online or through your bank to obtain an RV loan. Often, they can give you a very fair interest rate, and you may even get pre-approval for some loans. This is particularly useful if you’re on the fence about how much RV you can really afford, because they can help you find out your credit score and help you get qualified without the perceived pressure from a salesperson in an RV dealership. Knowing this information is powerful, even if you decide not to go through with the purchase.

Personal loans

If you plan to purchase a less expensive/smaller RV or campervan, and you are comfortable with the amount of money you need to borrow to cover the vehicle, you may find it easiest to apply for a personal loan ahead of time. Some lenders request that you use a personal loan if the purchase price is below a certain amount, often $10,000-20,000. 

If you choose the personal loan route, you’ll receive the money as a lump sum, so you can even bring the money with you when you go RV shopping. Just be mindful of any conditions a lender may apply to personal loans and be aware of your financial health and limits. 

Secured vs. unsecured loans 101

All automobile loans are secured, with the vehicle itself as the collateral. This is why lenders are able to repossess cars if the owner defaults on the loan. In comparison, most personal loans are unsecured, so no collateral is required, and approval hinges entirely on your creditworthiness. This is why personal loans are generally used for smaller loans, as there is no collateral for the lender to collect on in the event of default. 

Since RVs vary so widely in cost, the type of loan you use for purchase also varies. Smaller RV loans are sometimes unsecured, functioning more like unsecured personal loans. Many banks offer these in fairly sizable amounts - up to $100,000 in some cases - with a larger down payment and for certain types of RVs. 

However, larger RVs (particularly luxury Class A or Class C coaches) almost always require a secured loan, using the motorhome’s title as collateral. Since the loan is secured, lenders are usually more generous with interest rates, which may result in a lower monthly payment for you. Just remember that if you default on a secured loan, then the lender can repossess your RV. 

Purchase the RV and start traveling!

Once you secure financing through the lender of your choice, make your down payment, and feel confident about your budget, you’re ready to hit the road and join millions of other happy RVers all over the world. 

Here at Transwest, we know that buying an RV is a big investment, no matter how much you spend. That’s why our friendly and knowledgeable staff is available to help you decide between only the highest quality RVs made by top manufacturers. If you’re interested in RVs, be sure to check out a Transwest location near you today, or shop our online inventory and let us help you find and finance the perfect RV for you.