RV LENDING – THE INS AND OUTS OF LONG TERM FINANCING

Today’s RV buyer is presented with so many decisions to make when purchasing a new or used camper.  Sometimes it gets a bit overwhelming, and many people make knee jerk purchases because it just gets to be a bit much.  Many of your family owned dealerships will be more than happy to counsel the purchaser on financing options, and explain the ins and outs to keep the purchaser in the best financial position.

The biggest mistake that a person can make is to buy a camper that is potentially not the best fit.  Too often we hear from people who regret the purchase they made and want to “down-size” in order to lower their payment.  The biggest misperception that many consumers seem to have is that the debt on the original purchase will “disappear” by doing this.  Make sure to educate yourself on financing before getting into a purchase situation. 

For example, Customer A purchases a 30’ travel trailer and takes out a loan for $25,000 over a term of 15 years at 6% interest.  After a year of ownership, they may have a life situation change such as jobs or new baby, and suddenly that attractive payment on the $25,000 is a little more than they can budget at this point.  (I have received 5 calls just this past month with the same scenario).  They think that they can trade for a smaller less expensive unit and finance only the difference.  However, that original $25,000 is still out there and needs to be paid off.  You can’t trade a unit without a title that is free from debt.  In the time since their purchase, the original camper has depreciated, is only worth $17,000 on the used market, and within in the first year that customer can become “upside down” on their unit which is a simple term for owing more on something than what it is worth as a used unit.  In this case, they owe $8000 more than the price it will sell for.  When this is the situation, it is usually best to sell the unit outright and try to re-coup your losses even if it costs you some money out of pocket.  Or keep the unit and try to pay down the debt at an accelerated pace.

Another mistake that people make is to finance sales tax and license plates on the camper thereby making the debt larger than the original purchase price.  You don’t want to pay interest on a tax that you pay the government.  When you start looking at campers or any other large purchase, make sure to budget to pay government fees out of pocket. 

This is an example on how the debt accrues:

Original purchase price:                             $25,000

Sales tax at 7%:                              $1,750

Licensing:                                        $250

Hitch equipment:                          $900

Total amount financed:               $27,900

Financed for 15 years at 6% – payment would be $235.44 per month.  The total interest you will pay on this amount over the full term of the loan (15 years) is a staggering $14,478.49. 

One way to lower the amount you owe over the length of a long term loan and slash the amount of interest paid is to budget for a higher payment amount.  If you are able to afford an additional $25 to $100 per month, make sure to apply that amount to principal only every month.  Take the example above – make the actual payment of $235.44 every month, but designate an additional $50 every month.  You will have lowered the amount you owe by $600, and because all loans figure the interest on the amount owed, you will lower the amount of interest paid.  In the course of 5 years, you will have lowered the amount owed by $3,000 in addition to the principal being paid by the payment.  Do NOT just add it to your payment amount.  All that will do is pay interest, and not lower the principal.  The banks are always going to pay themselves first.  Since all loans are interest heavy at the beginning of the loan, the quicker that you pay down the principal (or the amount financed), the less interest you will pay over the term of the loan, thereby making the payoff that much quicker.

In order to avoid the pitfalls of getting in over your head, take your time to make a purchase decision.  Don’t let a high pressure sales staff make you feel that you need to buy that camper today or the price is no good.  If the camper isn’t exactly what you were hoping to find, walk away and clear your head and sit down and make a list of your priorities.  Don’t forget pre-owned campers when making your decision – a lot of times you will find a similar higher end unit for the price of a new basic unit, making it a better buying decision since the original owner has taken the initial depreciation out of the equation.

In other words, know before you go.  Study floorplans – don’t be afraid to stop by dealership lots and just poke around.  It will give you a chance to see different floorplans on your own, and also get a feel for the different quality levels as well as for the type of dealership that you are dealing with.  If they are extremely high pressure, you will know within the first few minutes.  Don’t hesitate to go to a different dealership if you aren’t comfortable.  The purchase of your 1st or 10th RV is a big decision, and one that should be made in an environment that you can trust and one that won’t rush your decision.  One of the suggestions that I make to my customers is to drive by some of the campgrounds – stop and get out for a walk.  If someone has a camper similar to what you are thinking about, get out and ask them their opinion.  What they like, what they wish they could change.  You would be surprised – a lot of times, they will invite you inside to see how it is laid out, how they have decorated, and may even offer you a cup of coffee!  That is what makes camping so great – the camaraderie among campers.

I usually tell my customers to look at a camper purchase as something that they need to own for anywhere from 3 to 5 years minimum.  Best scenario is 5 years to 7 years.  The people who listened to me and followed this “golden rule” have ended up making a wise choice and have found themselves financially much better off than the people who “shotgun” purchase and think that they can trade in every year or 2.  The longer the ownership, the less you owe, making the next purchase that much easier and much wiser in the long run.

As always, if you can afford to put money down on a camper or any other purchase – do it.  The less you finance at the outset, the easier it will be for you to adjust to any life changes that occur, in case you need to sell the camper due to emergency, etc.

Hopefully these tips help.  Our goal is to make sure that the customer purchases the best camper for their situation and for their budget.  The happier you are with your first purchase, the more likely you are to come back for your 10th purchase.  Camping is a way of life for many North Americans.  Your camper is your palace on wheels, and should not only be functional, but comfortable and built well. 

Now for the best tip of all for those of you who made it through the whole article – fall and winter are the absolute best time of year to purchase a camper.  The dealer is at his most motivated to make a deal since he needs the room for new inventory before sport show season.  (He also needs room for all the snow.)  So if there is a camper that you have had your eye on, or decide to begin shopping, now is definitely the best time of year.  The dealer is usually most interested in making you a deal you can’t refuse!  Even if you can’t use it for a couple of months, you will be out camping long before those people who wait until the sport shows come.  (And the deal may even be better!)  The pace at the dealership is more relaxed, and the sales person can spend more quality time with you and help you look at the best campers for your lifestyle.  Ask all the questions you want – they will have the time to sit and help you in your education process on the purchase of an RV.  

And always remember….”We have your way of camping” whether it is off the beaten path, in a resort or in a local campground.  There is a camper for everyone!

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This article was originally posted here.

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