While recreational vehicles come in all shapes and sizes, and you can find one to fit almost any budget and need, many RVs cost too much for the average person to buy in cash upfront.
Luckily, there are ways to save on RVs like buying used or opting for a smaller trailer. But at the end of the day, you may still need to take out a loan if you want to own the RV of your dreams. While some lenders will offer terms as short as 12 months and others will offer loans up to 20 years, the typical RV loan lasts between 10 to 15 years.
In this article, we’ll break down the factors that affect loan length. Let’s dive in!
There is no set length for RV loans. Consumers have many options, meaning you can usually find a loan product that fits your needs. How long your loan terms should be will depend on a number of factors, including the value of the RV, interest rates, your credit score, the down payment, and how much you can afford in monthly payments.
Typically, cars will be financed in three to five years, which makes sense for a purchase that typically costs between $20,000 and $40,000. Breaking that up into 36 to 60 payments makes it a much more affordable endeavor, allowing you to pay off the lender until the car fully belongs to you instead of the bank.
RVs can cost noticeably less than that— or exorbitantly more. For instance, if you’re buying a used travel trailer, it may cost around $6,000. You might be able to pay that off in twelve monthly payments, which helps keep your total interest payments lower. But if you’re buying a motorhome, you can easily expect to pay $50,000, $100,000, or half a million dollars.
Those are the kind of prices you could be paying for a home, so you will want a financing plan to reflect that.
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While a down payment doesn’t change the value of the RV, it does change how much money you will need from your lender.
While many RV sellers will need a 10% down payment, it’s always a good idea to put down as much as you can realistically afford. By keeping your initial balance lower, you can save money in the long run. With interest payments, spending an extra $1,000 will save you more than that over the course of the loan.
One of the few exceptions where a smaller down payment is better is if you have a sound investment you can make that will return more money than you would save in interest payments.
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Any time you’re applying for a loan or using one to purchase a big-ticket item, the most important thing to check is the interest rate you can get. This rate will typically be listed as a yearly interest rate or APR, but with a monthly payment plan, you can divide that APR by twelve to see how much interest you’ll be paying in a given month.
Your monthly interest payment will be based on the remaining balance of the loan, not the initial balance. So, for instance, if you have a 5-year loan of $6,000 and a 6% APR, you will pay 0.5% of the balance in interest this month in addition to the monthly payment. This means that you will pay $100 in loan payments ($6,000/60 months) and $30 (0.5%*$6,000) in interest payments for the first month and have a balance of $5,900. The next month, you will pay $100 plus interest of $29.50 (0.5%*$5,900). So each month, you will pay less and less in interest payments.
The interest rate on your RV loan depends on a few factors, namely the Federal Reserve Interest Rate and your personal credit score. The federal funds rate determines how much banks can charge each other on loans, which then impacts the interest rates that they need to charge individuals to still make money when loans are repaid.
This is adjusted by the Federal Reserve based on the economy and policies of the day, and it changes eight times a year, approximately every seven weeks. You don’t have any say in it, but you can keep track of it and might want to consider waiting if it looks like interest rates will soon go down.
What is more in your control is your credit score. Measured from 300 to 850, a credit score is a measure of how well you’ve been able to incur and pay off debt. If you’re able to make payments on time (for rent or mortgage, car payments, credit card, etc.) it will help raise your score. The higher your score, the more readily lenders will offer you loans and the better your personal interest rate will be.
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The last factor of your loan length is how much you can realistically afford monthly. Monthly payments are where you have to compromise between short-term savings and long-term savings.
If you know how much money the RV is worth and how much of a down payment you can afford, then you know how big of a loan you will need to take out. Knowing the initial balance of the loan and the interest rate on the loan, you can figure out how long you need to structure your payment plan.
If you can’t afford high monthly payments, then you will need to choose a longer loan. However, you should try to keep the loan as short as you can afford to. High monthly payments may hurt in the short term, but making fewer monthly payments means you will make fewer interest payments. This is especially important to keep your loan term as short as possible if your interest rate is high.
Knowing how much you can afford to pay monthly can help you determine the overall price of an RV you can afford if you intend to pay it off in ten to fifteen years, like the average length of an RV loan.
Though your monthly loan payment will be your biggest RV-related expense, there are other costs that you should consider. Don’t forget to factor in costs such as RV storage costs, campground fees, maintenance and upkeep, and RV insurance.
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