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.
Jennifer lives with her husband in a 29′ trailer in Mexico. She is one half of DashboardDrifters.com and the founder of RVSpotDrop, a web service for full-time RVers. Jennifer Jennings has been RVing for 2+ years and writing about the RV and Van Life for 2+ years. Jennifer specializes in topics such as Lifestyle, van life, campgrounds features, destination features, and product lists.
26 thoughts on “5 Reasons To Avoid Travel Trailer Financing”
Some posters have indicated that building one’s own RV is an alternative to financing one. I can’t disagree, as that is what I’m doing as well. I’m building a truck camper with a manual slide–out. It’s been the focus of my off-work time for 18 months now (as an aside, my wife and I built our home from 1997 through 2003). It’s fun, but there are definite drawbacks to building one yourself. First, it’s been 18 months and it’s only a little over half finished. The cost will be lower (about $7K) and, indeed, I pay as I go. But, building or renovating houses and campers does require a level of skill, dexterity, and strength that many people just don’t have.
I agree with a lot of this. We decided to buy a nice little Jayco 17.5 feet. Brand new in 2019. One of the worst decisions we have ever made. First thing that happened was the fridge main board quit. Took 2 months of it sitting at the Fraserway dealer in Prince George, BC to get it fixed. Next the pump at the back of the toilet broke. Next the furnace quit, needed a new ignition switch, now waiting for the taps to be replaced. We are so frustrated with the workmanship on this rig.
I feel your pain. Mine was a brand new class C motorhome. Supposedly it was all gone through and checked out. I get home and find water everywhere. I located the leak. It was a plastic elbow coming from the hot water tank. I took it in and it took them two months to get it back.
Of course calling twice a week and calling the manufacture. Finally we got it back. We took off on a three month trip and noted everything that needed fixed before warranty had expired.
Manufacture did not like Camping Worlds price and decided to have a private company fix all of my 27 issues from as little as blinds not well attached to roof leaking. It was there five months
Cash out the RV you will feel better. Sell it if you need to.
I do have the money to pay cash but it is invested and is returning 8% for the last five years( no guarantee of the future). If I take out a loan for 4.5% I will be loosing 3.5 %, so for me it makes since to borrow.
What stock is that? Your loan calculations are a little off however due to the higher interest and lower principal at the beginning. Try a loan calaculator and see what I mean.
If one is to buy an older RV, I would agree. However, if one buys new or gently used, I would disagree. Most RV owners do not have the cash. We are on our fourth RV in the last 32 years. All financed. My advice:
1. Establish a budgeted target price.
2. Buy for the long term.
3. Negotiate the dealer interest rate as well as the unit price.
4. Write off the interest paid as a second home if you itemize your income tax.
5. Make a large down-payment.
6. Keep your RV in pristine condition.
I would appreciate information on writing my RV off as a second home. We were able to do that with our boat years ago but our tax preparer says that we cannot do that with our RV.
Agree will all your points. Did exactly this and do not regret it.
Convert a cargo trailer to fit your needs and pay as you go. YouTube has tons of examples.
You haven’t painted a balanced picture. I just bought a $160K rig for 4.5% over 20 yrs. I put the minimum 10% down. The monthly payments are less than $1,000. That’s very comfortable for me; no one will be repossessing. Why on earth would I want to use my own money? Now I still have liquid investments for other joys of life? Everyone knows a fundamental rule of finance is to use other people’s money whenever possible. If modern life was a pay-as-you-go proposition, no one would own a house or vehicles.
A fundamental myth of finance is use other people’s money. Broke people give that kind of advice. How many people that use other people’s money have been able to become wealthy? I guess some people can out earn their stupidity. So you will be upside down on the camper for close to 20 years. You will be giving someone else over $50k in interest. What happens when you are disabled and can’t work or die. Do you have sufficient wealth to continue to make $1,000 payments? Your spouse can’t sell the rig for anywhere near the debt so they are now strapped for this payment. I have a nice camper and I paid cash for it. It is just a matter of patience to save the money. And as others have said, if you don’t have the cash for something, you cannot afford it and are using long term financing to satisfy your want.
They could own a car and a house as I did, just not try to keep up with others. I made my last house payment 42 years ago. My last car payment 51 years ago. I am still liquid as you say and I didn’t throw away that interest money.
I own a house and vehicles without payments.
Over 20 years on your example that equals almost $83000.00 in interest. That is exactly the point the poster is trying to make.
You would have paid $243,000. For that $160,000 RV. That is the point the poster in trying to make.
That wouldn’t make me comfortable.
I took out an RV loan in 2018 @ 2 . 5% for 5 years and the loan was very easy to get. I paid the loan off in 2 years. We looked for 3 years before we found what we wanted. I could have paid cash but opted to leave money in savings. Some people are comfortable buying a used travel trailer or motor home, but you must be prepared for problems you didn’t see when you looked at the unit. The only point I agree with is number 4: RV’s are not investments; but neither are cars, boats, furniture, appliances and many other items people buy every day.
Great Information you have given us. I will purchase a good used trailer for cash.
Very good information. Thank you.
Well . . . if one takes all this advice to heart, one should not purchase an RV at all (essentially, Dave Ramsey would agree, and has asserted this on programs other than the one you posted). RVs are expensive, of questionable quality for the most part, and depreciate rapidly (although in today’s market, not quite as much as in past years). You’re probably right that many people should not take out a loan on them. However, I’d estimate that most people cannot afford an RV and, thus, should really settle for tent camping.
I live in a different world. First, the only reason I would want a trailer would be to haul things, boat, small workshop, whatever; if I need to use the bathroom, I much prefer leaving the driver seat and moving to the back, without going outside, so no camper trailer. However, If I did want a camper trailer, I would buy an older, used, one that the body was in decent condition, and pretty much disregard the interior, because I would remodel the interior like I wanted it. Why? Cost for one thing, but mainly because I have yet to see a camper, whether trailer, self-contained, new, used, old, that I am pleased with the interior setup. So, I would modify what I got, to please me, not some unknown designer. I don’t need fancy, except for what I fancy up. I don’t need expensive, because I will create my own versions of what I want/need, except for certain items like fridge, etc. Toilet, DIY composting – get a copy of Humanure. Shower, DIY 5 gallon bucked with showerhead faucet, hung from ceiling, shower curtain, and tub to stand in, then stow when not used. Bed will raise to ceiling when not traveling, lowered for sleep or travel. Chairs, all folding, made by me. And so on. Oh yes, paper plates/bowls, plastic dinnerware, liner for slow cooker/instant pot, so minimum dish washing. Homebuilt generator, solar, DIY wind power, for electric, and so on. When finished it will all be as I want it, not as someone else ‘think’ I want, and I will have no problem making any changes I see fit to make.
Uh………if one cannot pay cash, one cannot afford it.
You mean like taking out a mortgage on a house?
Loan payments are fine on appreciating assets. Depreciating assets (autos, furniture, RV’s etc.) should be cash only in the real world.
Uh………yea, like, if one cannot pay cash, don’t buy anything on credit even if you can make payments because credit is evil man.
Not financing because of repossession if you default? You shouldn’t finance a car then either.
I don’t finance a car or a house. But I have owned 4 new houses without a payment in 42 years. Just moved into my newest one 2 years ago. House and workshop total 13,000 square feet on 15 acres.
Built it myself.
Pay cash, buy a nice unit within your budget, take care of it. I do it with everything. Made my first house payment in 1973, construction loan rolled over to home loan. I didn’t like (payments) so I sold it in 1979 and built the next one with me and my wife. Payments gone. Then did it three more times. No house payments in 42 years. Old saying at swap meets and car auctions, cash talks, hot air walks.