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A Small Change in Your RV Loan Rate Can Make a Big Difference

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When you buy a huge ticket item like a recreational vehicle, you want to make sure to get the best possible RV loan rate available.

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The more you borrow, the more it will cost you in interest over the years. So do your homework before you sign.

Even as little as a quarter of a percentage point can really add up over time.

For Fun or a Way of Life

There are basically two reasons why people buy an RV – for fun or as a way of life.

The funtime users may take their recreational vehicle out two or three times a year, whereas people that choose the RV way of life, spend most, if not all, of the year living on the road.

The second group is usually made up of retirees without any responsibilities keeping them in one location. The first group usually still needs to maintain a full-time job, or make sure the kids get to school each day.

Are you shopping RVs for fun, or a way of life?

Are you shopping RVs for fun, or a way of life?

However, it is not unheard of for an entire family to take to life on the road. In these rare cases, the children are home-schooled by their parents, or obtain an education through correspondence or long-distance learning programs.

The purpose of buying an RV can greatly affect your chances of obtaining RV financing, and the RV loan rate you can get.

If you plan to make the open highway your home, primarily or totally living in your mobile home, you may have to pay cash for your RV. Without a stable, provable source of income, lenders will be quite wary of financing such a large purchase.

But, if you have a stable income and only use your recreational vehicle for holidays, the lending restrictions will be much lighter.

On the other hand, if living on the road is what you desire, and you own a house, you may want to sell your home for a new life of freedom on the highway.

In this situation, you will have to either be able to buy the RV outright, or at least have a sizable down payment from the equity in your home, making the amount you need to borrow very low.

Recreational RV users can also use the equity in their homes as a down payment or as a security for the loan. In most markets, equity is almost the same as cash.

By applying the equity you have built up in your home, there is hardly a lender out there that will not give you the money you need to buy an RV.

However, other factors can still affect the RV loan rate you qualify for, such as your credit history and other financial obligations.

Home Equity as Security?

A house is the biggest investment most people ever make in their lives. After a few years, the equity starts to build up.

The equity is the difference between what you owe on the property and what it could sell for on the open market.

Most traditional lenders will let you borrow up to ninety percent of your equity. They hold back the other ten percent in reserve, just in case the market changes and you can not sell your house for as much as the appraised value.

This, of course, is a worst-case scenario. Very rarely do houses sell for less than the appraised, current market value.

To use your equity as a security or as a down payment for your RV loan, no money is actually changed hands. Of course, this type of loan is best negotiated with the holder of your mortgage.

The mortgage holder will basically just add the additional funds onto your existing mortgage, or set you up with another mortgage, also known as a second mortgage. 

This type of loan is generally the easiest type to arrange. Because you already have a credit history with the lender, you have a very good chance of being approved. Plus, a mortgage carries about half of the interest of a personal loan.

Most RV loans have to be financed with a personal loan, because they are luxury items, and not necessities. Whereas a house is considered a necessity.

Once you adopt an RV-based lifestyle, you may find it hard to live in one place again!

RV Loan Rate and Length of the Loan

Most personal loans are granted with five to ten year terms. However, since an RV is a very expensive purchase, many lenders will extend these terms up to 20 years.

The longer repayment term you can negotiate, the better RV loan rate you will get.

Keep in mind, the longer you stretch out the loan, the more you actually end up paying in interest, no matter how great of a rate you can get. Your monthly payments will be much lower, though, so this could be a great option for you.

There are several options available when it comes to financing your RV. Consider your options carefully and if you have any questions, don't hesitate to contact us.

Our team of professional advisors will be happy to help you in any way. 

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