5 Reasons To Avoid Travel Trailer Financing
There are always newer models of RVs being built, and it can be super tempting to upgrade or buy a brand-new RV. But should you finance your next RV purchase? Here are 5 reasons why you may want to avoid travel trailer financing on your next rig.
1. Emotional spending
Not surprisingly, humans are motivated by emotions. Our purchasing habits are also greatly influenced by our feelings and emotions. So, when you consider purchasing a new travel trailer or upgrading your current rig, what is the emotion behind that motivation?
This might seem silly, but understanding what is motivating you can have an impact on whether or not this purchase and financing is a good idea.
Taking on new debt via travel trailer financing might not be a good move if you are only making the purchase because you want to alleviate feelings of shame or jealousy. Unfortunately, humans are prone to comparison. We see our RV friends with the newest model and compare our own rig. The important thing is that you don’t give in to the temptation to curb jealousy by spending frivolously.
Whether you are driven to purchase a new RV by happiness and excitement, anger, shame, jealousy, or anxiety, you should consider what emotion is motivating you to consider financing.
2. RV repossession
RV repossession is a real thing – in fact, there are countless businesses profiting from RV repossession. When you use financing to pay for your new travel trailer, you never really own your purchase – the bank or lender does. So, if you default on payments, the bank or lender will repossess the collateral – your RV – or pay someone else to do it.
“Repossession is the term used to describe the taking back of property after a borrower has defaulted on payments. The lender either repossesses the collateral or pays a third-party service to do so.”Bankrate
While it might seem like a simple solution to secure travel trailer financing to fund the new rig or lifestyle, you should consider the fact that you don’t own the rig and the lender can and will repossess your RV if you default on payments.
To make the situation even worse, not only do you no longer have the travel trailer, but you still owe money! When the RV is repossessed, the lender will likely not be able to sell the RV for the original loan amount. That loan will then go into collection. If you used your home for collateral on the RV loan, a lien can be issued or you can be taken to court.
3. High interest rates for travel trailer financing
While the interest rate for an RV loan may seem reasonable, the amount you pay in interest for your travel trailer financing is huge. Depending on the travel trailer and your downpayment, the terms of your RV loan might last 10 years. In some cases, you might have a 20-year term on your new RV!
RV loan interest rates can vary widely, from around 4.5% to nearly 20%. These rates vary by a number of factors including:
- The lender
- Your credit
- The loan amount
- The down payment amount
- The loan term
Let’s assume you have excellent credit, current interest rates start around 4.29%. Assuming you purchase a new travel trailer at an average price of $35,000, you would be spending a grand total of $17,195.09 on interest alone! Over 20 years, you would have paid over $50,000 – for something that will NOT be worth that amount when you go to sell.
4. RVs are not investments
It’s a bitter truth that what you purchase your RV for does not equate to what it is worth in the future. Similar to a vehicle, RVs depreciate at a rate that is faster than you can pay off the travel trailer financing. RVs depreciate approximately 30% as soon as you drive them off the lot!
In the first year of ownership, that RV depreciates another 18% followed by another 10% in year two. Every year after, they depreciate 5-6%.
Quite simply, RVs are not worth while investments and may not be worth securing costly financing.
5. Getting an RV loan can be difficult
Lastly, obtaining travel trailer financing can be tricky, according to CreditKarma. In some cases, you might have more issues getting an RV loan than a vehicle loan. Depending on the loan term and amount, qualifying for an RV loan may be similar to getting a home mortgage!
Most people looking to obtain an RV loan already have other loans – for example, a car loan. When lenders look at the current debt-to-income ratio, this will affect the interest rate and loan amount.
Before making a large purchase – such as an RV – make sure you consider all these important factors of why travel trailer financing for your new rig might not be the best option.
RVers looking for valuable how-to information have learned to go to the experts. Forums such as iRV2.com and blog sites like RV LIFE, Do It Yourself RV, and Camper Report provide all the information you need to enjoy your RV. You’ll also find brand-specific information on additional forums like Air Forums, Forest River Forums, and Jayco Owners Forum.