RV Financing Tips
Unless you’ve been living in a cave somewhere with no news coming in, you know that interest rates on new and used RV loans are at all-time lows and opportunities to refinance RVs have never been more plentiful. As a result of this trend, right now may be the best time to buy that motorhome, travel trailer or fifth-wheel you’ve always wanted.
Many banks, credit unions and brokers handle RV loans as part and parcel of their overall lending programs. Some institutions now even accept applications online. Currently, most lenders charge the same interest rate for writing a loan on a new vehicle as they do on a used or refinanced unit. All you need to successfully qualify for such a loan is:
– A good credit rating as certified by one of three credit reporting agencies (Equifax, Experian or TransUnion).
– A record of regularly meeting one’s financial obligations (timely payment of bills).
– A proof of income (an applicant’s debt-to-income ratio is scrutinized here; this is the most common reason that applicants are turned down).
– A sufficient down payment (10 to 20 percent).
Buying a new vehicle is always exciting as is the promise of many enjoyable recreational experiences in the future. In addition, you have the benefit of being the first owner with all the advantages that go with it. When purchasing new, buyers should also be aware of the figurative elephant sitting in the sales office with them — the spectre of depreciation.
As most people know, new cars and RVs lose a portion of their value the minute they are driven off a sales lot. That’s why it is wise to make a reasonably sufficient down payment to prevent becoming immediately upside down on their loan (owing more on the unit than its wholesale value). This also ensures you have a bit of equity in the unit should you either want to refinance in the near future, trade it in on another or sell it outright. Remember that banks will usually only loan what a used or refinanced vehicle is worth at wholesale value.
New RVs also tend to depreciate quickly because of their traditionally higher markups, which means it can sometimes take years to catch up to that point where the loan balance equals the wholesale value of a unit. In cases like this, buyers should seriously consider taking out extra insurance to fully protect the investment in cases of total loss. Examples of such policies may include Guaranteed Asset Protection (GAP) or optional Full Replacement Coverage offered by Good Sam (GS) insurance.
Believe it or not, the most lucrative market for the majority of lenders right now is in the refinance business. With the banking industry’s eagerness to write new loans on existing contracts, RV owners who take advantage of these opportunities can often realize significant reductions in their monthly payments.
If refinance applicants find themselves upside down on their existing loans, however, they usually must pay the difference up front in cash; between what they owe on their units, and what the wholesale book allows.
Wholesale values of RVs can be looked up easily online for free at www.nadaguides.com (banks, dealers and other commercial subscribers use NADA Connect). This is the resource most lenders consider when writing loans on used vehicles, and likewise the refinancing of existing RV loans.
Interest rates on loans vary from person to person, depending on an applicant’s FICO (Fair Isaac Corporation) credit rating (high 700s to low 800s are preferred). FICO information provides a brief, personal assessment of the risk that banks and other institutions use to help make lending decisions.
Loans to those who consider their RVs as their full-time residences have always been considered iffy at best. The RV is considered the primary and often only collateral on the contract used to finance it, and because this collateral moves at the whim of the owners, loans to full-timers have long been viewed as a higher risk than ones made to people with a permanent residence.
In the past, full-timers sometimes circumvented residency issues by fudging facts or using a family member or friend’s address as their official place of residence when applying for a loan. Although the current banking atmosphere appears to be optimistic for most loan applicants, full-time RVers who live exclusively in their vehicles have recently had even more qualifying paperwork added to their already arduous task of securing loans.
Many have also chosen to become Montana LLCs (limited liability corporations) for a variety of tax reasons. This move has further limited their already narrow loan prospects.
To cite page, chapter and verse of why the current industry lending practices for RVs have been revised by the federal government would put most readers to sleep. The short version is that the federal guidelines regulating these lender disclosures changed drastically following the sub-prime mortgage debacle. This resulted in the subsequent passage of the SAFE Mortgage Licensing Act of 2008, and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 that created a sea change in the lending game.
Prior to this legislation, RVs and luxury powerboats were excluded from many truth-in-lending elements attached to housing loans. Because of new laws now governing transparency, banks and other lenders are being held to higher disclosure standards, including RV loans and refinance deals.
When it comes to applications from full-timers without a permanent address, and the even more voluminous paperwork now associated with such loans, most lenders have decided writing contracts to such people “is just more hassle than it’s worth.”
Who Lends To Full-Timers
Though the attitude some lenders have taken toward full-timers seems to paint a bleak picture, we’ve found at least three that currently finance or refinance RVs for full-timers. These include the Good Sam Finance Center, Alliant Credit Union and Essex Credit.
Of all banks and credit unions researched for this piece, it was discovered that the Good Sam Finance Center offers some of the more competitive advantages to most applicants. Though there are some qualifications that not all candidates may meet, the Good Sam Finance Center presents the least amount of hurdles, makes the most allowances, and offers some of the lowest interest rates in the industry (rate may vary weekly).
Some lenders to full-timers stipulate that automatic loan payments be put in place; Alliant Credit Union requires that an escrow account be set up with them, containing the equivalent of one year’s insurance as a form of collateral. The money is returned to the customer after 12 months of successful loan payments.
Good Sam’s Finance Center writes RV loans to traditional applicants as well as full-timers, while still complying with new federal lending regulations. GS also routinely makes the following allowances on conventional loans, as well as refinancing.
– GS charges the same interest rates for refinancing as it does for new or used vehicles.
– GS will make loans to full-timers, though there is additional paperwork involved.
– GS will refinance a vehicle, even though the owner is upside down on the existing loan. Certain criteria apply here, and include having a FICO score higher than 800.
– GS covers loans as low as $50,000, while some other institutions begin at $100,000.
– GS tries to refinance units up to 10 model years in age; other lenders usually stop at eight years.
– Borrowers must have a debt-to-income (DTI) ratio of 45 percent to qualify for a loan. GS is trying to increase its lending criteria to a DTI ratio of 49 percent.
Montana Limited Liability Corporations (LLC)
Most RVers and full-timers can usually qualify with one or more of the lenders mentioned in this article, and many others. However, one loosely knit group of individuals that are registered in the state of Montana as LLCs for reasons of a tax shelter have essentially made themselves ineligible with most lending institutions.
Lenders such as Essex Credit and Alliant Credit Union that focus on the Escapees Club will grant loans to full-time RVers, but decline to consider applications from Montana LLCs. According to Alliant representative Rich Holke, “Here at Alliant we view LLC applicants as ‘business entities.’ For the purposes of RV loans, we only make (full-timer loans) to individuals.”
One institution lending to Montana LLCs is Sun Trust Bank of Fairfax, Va. In discussing this issue with Don Parkhurst, one of the bank’s officers, we were advised that his organization does write loans for Montana LLCs, though it does not accept applications from full-timers. He also cautioned that there are legislative moves afoot in several states at this time to curtail or nullify rights currently held by Montana LLC members.
In the present lending climate, there are RV loan opportunities available for most people with good credit scores and the desire and ability to take on the debt. Even prospects for full-timers appear to be readily available.
Interest rates may not stay this low forever, so there is no better time than now to start dealing.
Alliant Credit Union
Good Sam Finance Center
Sun Trust Bank