Good Sam RV Travel Guide & Campground Directory
Financing and Insuring Your RV
So you are thinking about buying a recreation vehicle? Whether you are a young family seeking the pleasures of
adventures, busy professionals seeking quality leisure time, or a mature couple considering RV travel to bring variety and excitement to your retirement years...there's an RV to meet your needs and budget.
Your path to RV ownership will be smoother if you are prepared in advance to approach decisions about financing and insuring your new unit. We'd like to share with you some of the wisdom and experience accumulated by some of the nine million RV owners who have preceded you.
Consider Your Financing Options
Self-financing. Before making an RV purchase, check your resources to determine if it will pay you to borrow from yourself. You might finance your purchase by using your retirement payout, proceeds from the sale of a residence or other "windfall" income to make your purchase for cash.
You might borrow against a paid-up whole life insurance policy. If the cash value of your policy is large enough to cover the annual interest payments, you can skip making monthly payments, if necessary. You might consider a home equity loan; however, one big advantage - the deductibility of interest - is not needed if your RV qualifies for a second home deduction (see below).
There is an offsetting disadvantage to self-financing. Your funds, if otherwise invested, could be producing dividend income for you. Also, by converting some assets to cash, you might incur taxable capital gains or (in the case of bank CDs) early redemption penalties. However, as a rule, the yield from most investments will not match the interest you would have to pay for a bank loan. So, if you have sufficient capital, it will be cost effective to borrow from yourself.
Most purchasers do finance their RVs, tailoring monthly payments to fit their budget. RV loans are considered good business by banks - they suffer fewer defaults than on other types of loans. But, you'll need to shop around for the best deal. Don't assume bankers won't lend for low-cost units or used ones, if that's what you plan to purchase. In fact, they will.
Make your inquiry to the loan officer at the bank where you do your regular banking, or which issues your credit card. Likewise, you can approach a bank or financial institution where you've borrowed before. These banks will know your credit history, and you can often shop by phone.
In an annual survey of
by the RV Industry Association, nearly 300 banks and financial institutions responded. They indicated the willingness of lenders to finance family camping vehicles. A typical RV loan for a new vehicle, according to the survey, averaged $16,744.00, maturing in 10 to 15 years. Down payments ranged from 10 to 20% of the purchase price.
Loan terms for used RVs usually require a 20 to 25% down payment. But, since initial outlays are smaller, it is easy for a family on a budget to get into the RV lifestyle economically. Financing packages for used units can spread out payments from four to eight years.
Dealer-Assisted RV Financing
Your RV dealer may have a source for competitively-priced financing. In some cases, the RV manufacturer of the unit you are purchasing will offer financing. The dealer may or may not add a commission to the loan he offers. You will be in the most favorable position to negotiate for the best financing deal if you've shopped for loans from other sources before getting serious about your RV purchase.
Other Sources For Loans
Many RV clubs, such as The Good Sam Club and Family Motor Coach Association have tie-in deals with finance companies. Again, shop them in advance of your purchase to compare their offerings against those of your local bank. Also, don't forget to check the lending rates of your credit union, if you belong to one.
When applying for a loan, be sure to compare "apples" with "apples". Various loans may be quoted to you in different ways, based upon simple interest, add-on or variable rates. The only thing that matters is the total cost to you of any loan - that is, the total interest you will pay over the life of the loan, including points and finance charges. Convert all competing loan offers to their annualized percentage rate (APR), so you can judge among them correctly. The difference of a quarter or a half a percentage point can mean several thousand dollars more in total costs over the term of a loan. Also remember, the shorter the loan period, the less your total cost. Beware of any loan contract based on the so-called Rule 78. Under this plan, you'll pay for most of the interest even if you pay out the loan early.
Wherever you finance, consider the advantages and cost of credit life insurance to protect your family's finances should something happen to you. Opinions differ on the need for credit life. Some people wouldn't be without it; others consider it a "rip off". Some financial planners are vocal in their opposition to credit life insurance, claiming a policyholder pays six to eight times more for this coverage than for the same level of term life insurance or income disability coverage. Know your own tolerance for financial risk before going into any deal. You may feel the premium cost is worth it in peace of mind. In any event, beware of anyone who automatically writes up your loan to include credit life insurance, without getting your permission. Also, don't let anyone tell you credit insurance is required with a loan; this is illegal.
Consider taking a Second Home tax deduction. Taking a tax deduction on the interest payments on your RV loan is a big advantage. To qualify, your unit must be a "second home"; that is, it must be equipped for sleeping, living, bathing, food preparation and dining activities. Virtually all types of RVs, including motorhomes, van campers, travel trailers, truck campers and even some folding camping trailers are equipped with these facilities.
The Internal Revenue Service publishes two free booklets on the deductibility of RV loan interest. They are: "Publication 936 - Home Interest Deduction" and "Publication 523 - Selling Your Home" and available by calling the IRS at 1-800-829-1040 or visiting
Save Money By Buying A Previously-Owned Unit
Many purchasers find this a cost-effective way of becoming an RV owner, especially if they are first-time buyers and new to
. If you'd like to explore this option, consult your RV dealer. He has reconditioned the unit he offers, giving you some assurance of its reliability. The dealer may offer a limited warranty period; always ask. If you buy from a private party and are not knowledgeable in mechanics and RV systems, hire someone who can give you an accurate reading of the condition of the unit you are considering. Also, inquire if the seller has any warranties which are transferrable to you as the new owner.
What should a used unit be worth? You can get an idea of value by studying the classified ads in the back section of many RV magazines. They have detailed descriptions, many with photos, of used units offered for sale by individuals. Another source: The Kelly Blue Book - RV Motor Home Guide, published every four months by the Kelley Blue Book Co. of Irvine, California. This is used by dealers to follow wholesale and retail values of all makes of RVs, by type, size and model year. You might ask a local RV dealer to see a copy, or try the reference section of your local library.
by state or province.