RV Financing Options At A Glance
December 18, 2012
Filed under Feature Stories
Unless you’ve been living off the grid somewhere with no news coming in, or just don’t keep up with current events, you would know that interest rates on new and used RV loans, as well as opportunities to refinance such vehicles, are at an all-time low. As a result of this current financial trend, there will probably never be a better time than right now to buy that motorhome you’ve always wanted.
Many banks, credit unions and brokers make RV loans as part and parcel of their overall lending programs. Some institutions 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 that anyone usually needs 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)
– Record of regularly meeting one’s financial obligations (timely payment of one’s bills)
– 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, with the promise of many enjoyable recreational experiences in the future.
Additionally, you have the benefit of being the first owner, with all the advantages that go with it. But when purchasing new, buyers should also be aware of the elephant figuratively sitting in the sales office with them. It is the specter of depreciation.
As the majority of 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 for buyers to make a reasonably sufficient down payment to prevent them from becoming immediately upside down on their loan (owing more on the unit than its wholesale value). This also ensures that they have a bit of equity in the unit should they either want to refinance in the near future, trade it in on another, or sell it outright. Remember, banks usually will only loan what a used or refinanced vehicle is worth wholesale.
New RVs also tend to depreciate quickly because of their traditionally higher markups, which means it can sometimes take years to catch up to 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 their investment in cases of total loss. Examples of such policies may include Guaranteed Asset Protection (GAP), or optional Full Replacement Coverage as offered by Good Sam (GS) insurance.
Believe it or not, the most lucrative market for a 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 must usually 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 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 Corp.) credit rating (high 700s to low 800s 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 motorhomes as their full-time residences have always been considered iffy at best. With the RV considered the primary and often only collateral on the contract used to finance it, and the fact that this collateral moves at the whim of its owners, loans to full-timers have long been viewed as a higher risk than ones made to people with a permanent residence.
The way full-timers have sometimes circumvented residency issues in the past has been to fudge facts, or use a friend or family member’s address as their supposed 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 full-timers have also chosen to become a Montana LLC (limited liability corporation) for a variety of tax reasons. This move has limited their already narrow loan prospects even further.
To cite page, chapter and verse why current industry lending practices for RVs have been revised by the federal government would soon put most readers to sleep. The short version is that federal guidelines regulating 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 industry loans.
Because of new laws now governing transparency in lending, banks and other lenders are being held to higher disclosure standards, including those related to RV loans and refinance deals.
When it comes to applications from full-timers without a permanent address and the even more voluminous and annoying paperwork now associated with such loans, most lenders have lately decided that writing contracts to such people “is just more hassle than its worth.”
Who Lends To Full-Timers?
Though the attitude of some lenders taken against full-timers seems to paint a bleak picture, there are at least three institutions we’ve found 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 article, 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. *For example, Alliant Credit Union will hold one year’s worth of insurance in an interest-bearing savings account and will release these funds back to the member once the loan has been paid in full.
Good Sam Finance Center
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
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, which 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 them to individuals.”
One institution we found that does lend 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 will not stay this low forever, so there is no better time than now to start dealing.
* Correction: This article has been updated to reflect the following correction: Alliant Credit Union does not hold escrow and refund the amount after 12 months. Alliant does hold one year’s worth of insurance in an interest-bearing savings account and will release these funds back to members once the loan has been paid in full.