Be Successful in Getting a Loan for an RV
Most lenders who specialize in RV loans base their underwriting criteria on factors that differ from home mortgages and auto financing. Home and car loans are considered to be "necessities", while RV loans are considered to be more of a "luxury." This article explains what you need to get in order when looking for an RV loan, so that you can be successful in gaining one.
Setting Yourself Up for Success
- Have a good credit score. The number one factor that impacts RV loan approval is credit history. Most lenders will want a credit score of at least 640, but a score of 700 or better is more likely to obtain an approval at the best rate and most favorable terms. If your credit score is below this range, you may have to accept a higher interest rate or less favorable terms. With very low credit, you may not qualify for a loan at all.
- Know your debt-to-income ratio (DTI). This is your monthly revolving debt, (mortgage, auto and credit card payments) divided by your monthly gross income. Your gross income is your income from all sources before taxes.
- Lenders will also want to see proof of income, which is usually asked for in the form of your tax returns for the past two years.
- Most RV and marine lenders look for a maximum debt-to-income ratio of approximately 45 percent or less, however some will go as high as 50 percent or more with excellent credit.
- Determine the loan value of the RV. Each lender has their own formula for determining the amount they will loan on any particular RV. Most lenders will loan somewhere between wholesale and retail, depending on the previous factors listed above. However, some will loan up to the RV's retail value on refinancing.
- Research the value of the RV you are buying and look for a good deal. This will help you get a loan because the collateral (the RV) will be worth an amount equal to or greater than the loan value.
- Again, the better the credit history, the more flexible the lenders are likely to be.
- Make a down payment. A down payment will not only lower the overall amount of your loan, but will also ensure that you are not upside-down in your loan. Because a new RV may depreciate a full 20 percent in a year, you want to have at least paid off that much of its value in that time. Paying a full 20 percent down payment will help you do that and is standard practice among RV lenders.
- If you can't afford the 20 percent, there may be special programs that offer lower down payments, especially for those with great credit.
- However, if you can't spare the 20 percent, odds are you should wait and buy an RV when you can afford the down payment.
- Extend the duration of your loan. Most RV loans are between 5 and 15 years. However, for larger loans, perhaps over $50,000 or $100,000, they are willing to extend the length of your loan. This will lower your overall interest rate and make payments more affordable. However, keep in mind that you will end up paying more interest overall (over the life of the loan).
Finding the Right Lender
- Get financing before shopping. Before going to the dealer to look for RVs, it's best to already have some preliminary financing in place. This allows you to know how much you can afford to pay for an afford. In addition, it will give you a starting place for talking down your dealer's own financing terms. This can allow you to get an even better rate as the RV dealer works to earn your business.
- Consider dealer financing. Like car dealerships, RV dealers generally offer in-house financing. Their rates are slightly higher other rates you could get from a third-party, but may qualify you for better loan terms or discounts. Work with your dealer to identify and negotiate these terms.
- RV dealer financing may be more difficult to get than car dealer financing.
- Find a third-party lender. If you choose not to go with dealer financing, you will be able to seek out other lenders that may offer a lower rate. The exact rate you will get depends on your credit score and other factors, but even a slightly lower interest rate will mean big savings over the life of your loan. There are many options for pursuing a third-party loan, including banks, credit unions, and other independent lenders.
- Credit unions often offer the best rates. Search for credit unions in your area to see if you qualify for one of these loans.
- Some of the best rates and terms in the industry are offered by Good Sam Finance Center, Essex Credit, and Alliant Credit Union. Visit the websites for these lenders to determine current interest rates and get a quote.
- Compare lenders before deciding. Look around and get quotes from a number of different third-party lenders and from your dealer. Compare interest rates, down payments, and other items, like prepayment fees if you plan to repay you loan early. Interest rates and lenders' willingness to accept your credit score will vary widely between lenders, so make sure you check out every available source of financing and choose the best one for you.
- Remember to talk to your RV dealer about any discounts or special terms you may be eligible for if you take out a dealer loan with them. They may be willing to offer you additional discounts to earn your loan business.
- However, know that dealer loans are generally more expensive in the long run due to higher interest rates. Even a small different in rates can add up over the life of the loan. With a dealer loan, you're paying for the convenience of a one-stop RV purchase.
- In general, dealer rates are your best option if you're buying a brand new RV, while third-party options are better if you are buying used.
Getting an RV Loan with Bad Credit
- Pay a higher down payment. Paying a larger down payment can help you qualify for a loan you would otherwise not get. Making a down payment of 20 percent or more will show lenders that you have enough money to afford the loan, despite your poor credit.
- Accept higher interest rates. If you have bad credit, lenders will see lending to you as a risk. This means that they will charge you higher interest rates than a borrower with good credit would get in order to counteract that risk. You may be able to qualify for a loan by accepting these high rates, but keep in mind that the interest be very expensive over the life of the loan and will increase your monthly payments.
- Lower your debt-to-income ratio. Your DTI, defined as the percentage of your monthly income that goes towards paying off debt, should be lower than 45 percent. For a borrower with low credit, an even lower DTI can help you get a loan. Improve your DTI and your standing with a lender by showing a recent increase in income or a decrease in your debt payments.
- For example, if you recently paid off a car or your home, you will have a sudden reduction in debt that will give you more buying power and a better chance of getting a loan.
- Wait and improve your credit before buying. While it may not be what you want to hear, the best thing to do is to make an effort to improve your credit before taking on more debt to buy an RV. You can improve your credit by paying overdue bills, removing errors from your record, and lowering your outstanding debt balances. You can also improve your credit over time by making payments on time and using less of your available credit.
- Even if you don't improve your credit score dramatically, showing that you made an effort to do so can convince a lender to finance your RV purchase.
- Some lenders will ask you to pay a loan application fee. You do not need to pay this. If they refuse to waive the fee, move on to another lender.
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