Acquiring a motorhome is similar to buying a home. Even if you’ll use it permanently or just for a weekend getaway, it is an expensive purchase. Moreover, aside from the loans that you have to pay monthly, other expenses, such as maintenance, gas, and repair, are necessary to keep your motorhome functioning for a long time. Thus, it is crucial to do it wisely.
Most of us will obtain it from financing. Purchasing a motorhome through a loan can be confusing, time-consuming, and stressful if you are not fully aware of the process. It can also put you in a lot of financial trouble if you don’t handle it properly.
Fortunately, we’ve listed some advice and insights from the experts, campers, and motorhome shoppers when getting a motorhome through financing.
Knowing The Interest Rate
Avoid having a wrong perception about the interest rate. Many customers expect the same interest rate from the time they first inquired about the loan. Keep in mind that interest rates continue to rise annually. It may even change daily.
Interest rates also translate to the payments you’ll make every month. If you end up with a high-interest rate, you’ll most likely find the purchase to be a burden. But, if you’re able to get a considerable rate, the savings you get will allow you to enjoy your purchase and take your motorhome to your dream destinations.
Motorhome loan interest rates are around 4% and can go as high as 15%. These numbers vary because of different factors. Mainly, it will depend on the lender, the amount borrowed, your down payment, the preferred loan term, and your credit.
Shop Around, Do Some Research, And Compare
Never purchase anything without giving yourself a few more days to think or check for other options, especially if it’s an expensive purchase. Being caught up and making an impulsive purchase will only prevent you from getting better deals.
The best way to make sure that you are paying the best price for your motorhome is to shop around. Aside from going to dealerships, you can also find unique inventories at a reasonable price from expos and online dealerships.
It’s also best to compare motorhome financing rates, loan terms, and downpayment. Find the perfect price that fits your budget and credit. If you find reduced fees or lower interest rates, that is your best option.
Make Down Payments
Most lenders may require as high as 20% down payment, while some don’t even need at all. But keep in mind that paying for a larger down payment will help lower your monthly repayments.
It will also help you qualify for a loan with a lower interest rate. If you avoid paying a down payment, you could end up owing more on your loan than the motorhome’s actual worth.
Even if you afford to pay in cash, it’s still best to make a down payment and take it for a loan. Making down payments is the most effective way to use money, especially to a depreciating asset like a motorhome.
If you have the money to pay cash, use that money over investments that can be earning more interest. In that way, you’ll make most of your finances.
Consider Hire Purchase Over Personal Contract Purchase
Choosing the right financing option holds a significant impact on your purchase. Personal Contract Purchase (PCP) is the most popular way to finance a car purchase. However, hire purchase (HP) is an advantageous option if you’re purchasing a motorhome.
HP works out cheaper than a PCP over the lifetime of a loan because you’re paying off the loan faster. You’ll have higher monthly payments but with lower interest rates. This option makes sense if you’re purchasing with a large purchase as you most likely want to finish it off as soon as possible.
While with a PCP agreement, you’ll have lower monthly payments but higher interest rates. You’ll be paying for your motorhome over an extended period. Also, if you decide to keep the vehicle under a PCP agreement, you’ll have to settle a big balloon payment.
Although you have the option to return the vehicle under a PCP agreement, it must be in good condition and under the required mileage. You can also exchange it for different car arrangements, but that’s up for approval.
In HP finance, you also won’t have to worry about the motorhome’s condition or the mileage. You’ll face charges and penalties if you go over the mileage limit set out in a PCP agreement. This factor will limit your opportunity to travel and use your motorhome more. It will most likely stay in the garage.
Taking an HP finance for a motorhome loan makes the most sense because you’ll most likely keep it at the end of the financial term, it offers unwanted penalties, and you can use the vehicle for as much as you like.
Your Credit Score Is Critical
Your credit score plays a substantial role in any loan application. Your credit score is even more crucial when securing a loan to purchase a motorhome. Many financial institutions even have stricter approval criteria on motorhome loans than any other loans.
This is because banking and other financial institutions see it as a luxury rather than a necessity. Luxury items pose a higher risk, and they can reflect on the interest rates and terms.
With a rigid approval process, you may want to ensure that your credit score is within the required range before getting far into your motorhome shopping. Generally, the required standard is within 660 to 700 FICO Score. It will not only help you with getting approved, but it will also give you a more reasonable loan rate.
Taking motorhome financing can be tricky, especially for first time motorhome shoppers, but it won’t be as long as you equip yourself with enough knowledge and tips from expert motorhome shoppers and campers. Remember that it is an investment, so make use of these tips to your financial advantage and get that motorhome for your dream road trip now!
Lauren Cordell is a writer and marketing specialist based in New York City. She’s been working everywhere from California, Los Angeles, and Texas, making traveling her second nature. If she’s not on the road, she’s busy with night and nature photography.