How to Qualify for an RV Loan

I. Introduction

Recreational vehicles (RVs), campers, and motorhomes are appealing purchases for many people. Owning an RV makes travel easier and more convenient. You don’t have to worry about hotel rooms or flights, and you can bring many of the comforts of home with you.

Although RVs are the perfect way to experience some extra freedom and adventure, with this freedom comes added responsibility. Since RVs typically have high price tags, you’ll likely need to obtain a loan to buy one. It’s important to be financially prepared when seeking an RV loan. Doing some preparation in advance will help you increase your chances of not only getting a loan, but also getting a low interest rate and favorable repayment terms.

II. Understanding RV Loans and Their Requirements

If you’re looking to purchase a recreational vehicle, motorhome, or camping trailer, you probably need to get a loan. Here is how to qualify for an RV loan and what you can do to improve your chances of being approved.

• A. Different Types of RV Loans****

Most vehicle loans, including most larger RV loans, are secured loans. This means the loan is backed by an asset. If you are unable to make the payments, you lose the asset (in this case, the vehicle). However, some smaller RV loans are unsecured loans, which essentially function as personal loans.

Interest rates are often lower on secured loans, since the asset functions as collateral and reducing the lender’s risk. If you do not pay a secured RV loan, they can repossess the RV and sell it to recoup the loan amount.

You can get an RV loan from several sources. One of the most common is RV dealership financing. In this case, you arrange financing and payment directly through the dealership. However, you can also apply for a loan to purchase an RV through a bank, credit union, or online lender.

• B. Typical Loan Terms

RV loans typically have great flexibility. Depending on your financial situation, the size of your down payment, the amount you are financing, and other factors, the terms of each loan may be very different.

Since many recreational vehicles and campers often have large purchase prices, borrowers often extend the payment term to 10, 15, or even 20 years. Extending the term of the loan reduces the size of each monthly payment. However, with a longer payment term, you will also pay more interest over the lifespan of the loan.

• C. Why Credit Matters

Your credit score is vital when it comes to qualifying for a loan. Your credit score is a three-digit number calculated based on the information in your credit report. The better your credit score, the less risk you represent to lenders, which means you’ll have a greater chance of being approved for a loan and you’ll likely receive a lower interest rate on the loan as well.

If you have poor credit or no credit, then you may want to take some steps to improve your credit situation before you apply for a loan.

III. Building a Strong Credit Foundation

Having a strong credit score is one of the keys to getting an RV loan. Lenders look at your credit score before approval, so you’ll have a better chance of being accepted if you have good credit.

Here are a few things you need to know about building a strong credit foundation, why it matters, and how to qualify for an RV loan.

• A. Monitoring Your Credit Report

Your credit score is generated from the information in your credit report. Your credit report contains details on all your loans and credit obligations. Lenders report this information to the three major credit bureaus (Experian, Equifax and TransUnion) that compile the reports.

It’s important to know what is in your credit report to verify that it is correct and to understand how your actions affect your credit situation.

You can obtain a free copy of your credit report from the bureaus once per year, but there are also credit monitoring services that you may sign up for that will help you keep up to date with your credit standing.

• B. On-time Payments

One of the most important factors used when calculating a credit score is a consistent history of timely bill payments. Creditors like to see that you have an established pattern of paying your bills when they are due.

A missed or late payment is reported to the credit bureaus, and this could hurt your credit score. Even a single missed payment may cause damage, so always make all payments on time.

• C. Minimizing Debt Load

Creditors do not want to see someone who has “maxed out” their credit cards or who is close to using all the credit they have available. This may indicate a person spends more than they can afford to pay back or they do not manage their finances properly.

In general, the greatest benefit to your credit score is using around 30% of your available credit. This means that if you have $10,000 of credit available, you should aim to use less than $3,000.

If you are currently using more than 30% of your available credit, it’s a good idea to adjust your budget so you can put more toward debt repayment each month. Lowering your credit utilization ratio will improve your credit score and help your overall financial situation.

• D. Maintaining a Long and Varied Credit History

As mentioned, your credit history is an important part of your credit score. However, not only your payment history matters. The length of each credit account (how long the account has been open) and the type of credit matter as well.

Having accounts that have been open for a long time and include many different types of credit will improve your score, since it shows that you have a long history of being able to handle many types of loans.

• E. Limiting Frequent Credit Inquiries

Whenever you apply for new credit and a lender looks at your credit report, a hard inquiry is noted. Several hard inquiries listed over a short period for various different loans may hurt your credit score. Lenders may assume that you are having financial difficulties and looking for as many loans as you can get, which makes it more difficult to get future credit.

IV. The Role of Credit Builder Loans in Securing an RV Loan

If you have poor credit or no credit and are finding it difficult to get an RV loan or if you’re looking to improve your credit score so you can get a loan with lower interest, then one way to build your credit is through a credit builder loan.

• A. What Are Credit Builder Loans?

A credit builder loan is designed to help those who have poor credit improve their situations. Unlike a typical loan, you don’t receive access to the loan amount until after you’ve made all required payments plus interest. There is very little risk to the lender with these loans, making them easier to get than many other types of loans.

• B. How They Benefit Your Credit Profile

Just like a regular loan, your lender reports your payments on a credit builder loan to the major credit bureaus. If your payments are on time, this helps establish a positive credit history. Over time, your credit score will increase as you continue to make on-time payments.

• C. Finding the Right Credit Builder Loan

Many different institutions offer credit builder loans, including banks, credit unions, and online lenders. However, not all loans are created equal. Each has its own interest rate, payment terms, and other details to keep in mind. Shop around and find the best loan for you, and do not agree to a loan until you fully understand all the terms and conditions.

• D. Maximizing the Advantages

Most credit builder loans provide very little risk to the lender, since the borrower can’t access the funds until after making all the payments. For this reason, many lenders don’t perform a credit check before approving a credit builder loan. This works well for people who have no credit, as you can use the loan to build your history and improve your credit score.

One of the most important things you can do is to make payments on time. On-time payments will boost your score, while even a single missed payment may damage it.

V. Other Crucial Factors in Qualifying for an RV Loan

Your credit score isn’t the only factor that determines whether you qualify for an RV loan. Several other aspects of your financial situation that you will want to be aware of before applying, include:

• A. Steady Income

In addition to checking your credit score, the lender may also want information on your income situation. This may include providing them with pay stubs, tax returns, or other proof of income. Showing a steady income proves you are able to make the required monthly payments.

• B. Down Payment

A substantial down payment means you will need to borrow less money to purchase the RV, which will lower your monthly payments, making the loan more affordable.

If you are thinking about buying an RV or other large outdoor vehicle, create a budget in advance that allows you to save some money every month that you can put toward your down payment. By reducing your spending in other areas, you’ll be able to save a larger down payment, and that will make it easier to get a loan and afford the monthly payments.

• C. Debt-to-Income Ratio

Lenders want to know you’ll be able to pay your monthly loan payments. If you have several other debts that you are paying back, you may have greater difficulty paying off your RV loan.

To determine your ability to repay a new loan, lenders often look at what is called your debt-to-income ratio (DTI). This compares the amount you earn each month to the amount you spend paying off debt. It is calculated by dividing your monthly debt payments by your gross monthly income. For instance, if you earn $5,000 a month and have $2,000 in monthly debt obligations, your debt-to-income ratio is 40%, since $2,000 is 40% of $5000.

In general, lenders like to see a DTI of around 30 – 35% or less. If your ratio is currently higher, consider paying down your debts before you apply for an RV loan.

• D. Shopping Around

There are different ways to get an RV loan and different lenders. Shopping around between RV dealerships, traditional financial institutions, and online lenders will help you find the right interest rate and terms for your situation.

VI. Final Steps Before Securing the RV Loan

Taking the time to get your financial situation in order before you apply for an RV loan will help increase your chances of getting a loan and likely provide you with more favorable terms when you do.

• A. Pre-approval

Getting pre-approved for an RV loan provides several benefits. First, it lets you know how much you can potentially spend. This makes it easier to shop for a loan, since you’ll be confident in the amount you’ll be able to purchase.

Pre-approval may also provide you with an interest rate. This will help you create a budget to handle the payments.

To get pre-approved, you will need to provide the lender with details about your financial situation, and they will likely do a credit check.

• B. Avoiding Financial Pitfalls

Since your credit score is so important, you’ll want to take care of your credit situation and avoid major changes before finalizing your RV loan. If you have good credit, you don’t want to jeopardize your rating during the purchasing process.

For instance, avoid making any other large purchases, especially on credit, while you’re trying to purchase an RV. Major purchases may increase your credit utilization or debt-to-income ratio and can hurt your credit score.

• C. Understanding All Costs

When you are buying an RV, camper, or motorhome, remember you’ll pay more than just the cost of the actual purchase. You’ll also need to ensure you have the means to afford insurance premiums, the costs of regular maintenance and repairs, and even potential storage costs if you’re not able to park the vehicle at home.

Getting a full picture and understanding all costs will help you make a responsible financial decision.

VII. Conclusion

Many people dream of traveling in an RV to see the country in comfort, without having to book flights or hotels. Through financial diligence and smart credit strategies, this dream may become a reality.

Taking the time to understand what lenders look for when approving an RV loan and working to optimize your financial situation will increase your chances of being able to purchase an RV and comfortably make your monthly payments. This will reduce your stress, make handling the payments easier, and likely save you money in monthly interest charges, too.

VIII. References and Further Resources

Understanding what it takes to improve your financial situation and build your credit is important. If you want to learn more about how to qualify for an RV loan and what you can do to improve your financial situation, following are some additional resources to review.

• 5 Tips for Improving your Credit Score Federal Reserve Board
• Get smarter about your credit and debt Wells Fargo
• RV Loan Calculator J.D. Power