Buying a camper, boat, or RV is a big investment that can bring years of adventure and enjoyment. However, the process of financing these recreational vehicles differs from a traditional car loan in several important ways.
In this article, we’ll break down how loans for campers, boats, and RVs work, how they differ from traditional vehicle loans, and how to get an RV, camper, or boat loan.
How Camper, Boat, and RV Loans Differ from Traditional Vehicle Loans
Loan terms
While car loans usually range from three to seven years, loans for campers, boats, and RVs typically extend up to 15 to 20 years. The reason for these extended terms is the higher purchase price of recreational vehicles, which can range from tens of thousands to hundreds of thousands of dollars. Longer terms make monthly payments more manageable but can lead to higher overall interest costs due to the extended repayment period.
In some cases, RV and boat loans may include balloon payments. That means smaller monthly payments are made throughout the term, followed by a large lump-sum payment at the end. This is less common in traditional vehicle loans but can be a factor to consider when financing larger luxury items like RVs and boats.
Interest rates
Lenders often charge higher interest rates for RV, boat, and camper loans than for traditional vehicle loans. This is because recreational vehicles are seen as luxury purchases and are considered a higher risk for lenders. Unlike a primary vehicle, which is a necessity for many people, RVs and boats are non-essential purchases.
Interest rates for RV and boat loans are more sensitive to your credit score than traditional car loans. A slight dip in your credit score may result in a significant increase in the interest rate, making it more crucial for potential buyers to maintain a strong credit profile.
Down payments
Unlike car loans, where little to no down payment may be required, RV and boat loans often require a down payment of 10% to 20% of the purchase price. This is due to the high cost of these recreational vehicles and the fact that they depreciate quickly. A substantial down payment reduces the lender’s risk by ensuring that the borrower has a significant financial stake in the purchase.
The loan-to-value (LTV) ratio, which represents the amount of the loan compared to the value of the vehicle, is often more stringent for RV and boat loans. Lenders may require an LTV ratio of 80% to 90%, meaning they will only lend a percentage of the vehicle’s total value, requiring you to cover the difference.
Depreciation and asset value
Like cars, campers, boats, and RVs depreciate in value over time, but often at a faster rate. A new RV can lose 20% to 30% of its value within the first few years, which is significantly higher than the depreciation rate for most vehicles. This faster depreciation can put borrowers at risk of being “upside down” on their loan, meaning they owe more on the vehicle than it’s worth.
While cars generally have well-established resale markets, the resale value of RVs, boats, and campers can fluctuate more significantly based on demand, condition, and market trends. This variability can influence the terms lenders are willing to offer, as they want to ensure the vehicle retains enough value to cover the loan balance in case of repossession.
Loan amounts
The cost of an RV, camper, or boat is usually much higher than that of a standard vehicle. The average new car in the U.S. costs around $40,000, while new RVs can range from $60,000 for smaller models to over $200,000 for luxury options. Boats also vary widely in price depending on their type and size. As a result, loan amounts for these purchases are typically much higher, which can affect your eligibility. Lenders will scrutinize your financial situation more closely to ensure you can handle the larger debt load.
RVs and boats are often customized with add-ons like upgraded interiors, navigation systems, and solar panels, which can increase the loan amount. These upgrades may also impact your loan approval, as lenders will assess the resale value of the vehicle with its custom features included.
What To Know Before Applying for a Camper, Boat, or RV Loan
Credit score
Just like with traditional car loans, your credit score plays a major role in determining the interest rate for your camper, boat, or RV loan. However, recreational vehicle loans tend to be more sensitive to credit scores because lenders view them as non-essential or luxury purchases. A higher credit score can help you qualify for lower interest rates, reducing your overall cost of borrowing.
Before applying for a loan, check your credit report for errors and address any issues that may be affecting your score. Improving your credit by paying off existing debts, reducing your credit utilization ratio, and making timely payments can significantly improve your chances of securing a favorable loan.
Fixed vs. variable interest rates
A fixed-rate loan ensures that your interest rate remains the same throughout the life of the loan. This provides consistent monthly payments, making it easier to budget. If you value stability and predictability, a fixed-rate loan is usually the best option, even if the initial interest rate is slightly higher.
Variable interest rates may start lower than fixed rates but can change over time based on market conditions. While this might seem attractive initially, it poses the risk of your payments increasing if interest rates rise. If you plan on keeping the RV, boat, or camper for a long period, a fixed-rate loan may be safer.
Insurance and warranties
Just like car loans, lenders for RVs, boats, and campers typically require comprehensive insurance coverage to protect their investment. Make sure you understand the insurance requirements for your loan and compare different insurance providers for the best coverage at the most affordable price.
While most new RVs, boats, and campers come with manufacturer warranties, these warranties usually last only a few years. Extended warranties can provide additional coverage for costly repairs or breakdowns. Though they come with added expense, extended warranties can offer peace of mind, especially for older or pre-owned vehicles, which may require more frequent repairs.
Pre-qualification
Getting pre-qualified for an RV, boat, or camper loan gives you a clear picture of your borrowing power and interest rates before you begin shopping. Pre-qualification is a soft inquiry that doesn’t affect your credit score, and it allows you to set realistic expectations for your budget.
When you’re pre-qualified for a loan, you can confidently negotiate the price of the vehicle with the dealer. Sellers are more likely to take your offer seriously when you have financing already in place.
Loan terms and conditions
Some loans come with penalties for early repayment, which means you’ll be charged a fee if you pay off the loan ahead of schedule. Make sure to check whether your loan has prepayment penalties, as they can limit your flexibility in paying off the loan early to save on interest.
Be aware of any additional fees, such as application fees, document processing fees, or penalties for late payments. These fees can vary depending on the lender and could add significant costs to your loan.
Get on the Move With AZCCU’s Help
Getting a loan for a camper, boat, or RV comes with its own set of challenges and differences compared to traditional vehicle loans. Longer terms, higher interest rates, and larger down payments are just some of the factors to consider. By understanding how these loans work and preparing accordingly, you can make sure your loan is a smart financial decision that paves the way for years of adventure.
Arizona Central Credit Union can help you get loans for most vehicles, from automobiles to motorcycles to ATVs to RVs, campers and boats. If you have any questions, contact us online or call (866) 264-6421.
