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RV Financing

May 28, 2008  |  Difficulty: Easy

If you are looking for RV financing, or you just need some advice to ensure that you find a quality lender and a good interest rate, it is a good idea to choose a lender that can help answer your questions regarding the lending process. Regardless of whom you choose, here are a few tips to keep in mind:

Steer clear of loans that are not simple interest.

With a simple interest loan you will make monthly payments, and there are no penalties or higher interest rates if you prepay your loan. Simple interest lets you allocate your monthly loan payments between the interest and the principal. The amount of your payment allocated to interest is calculated based on your unpaid principal balance, the interest rate on your loan, and the number of days since your last payment. The rest of your payment goes towards the principal to reduce the unpaid principal balance due.

Conversely, with a pre-computed loan, the interest owed over the life of the loan is calculated using a standard amortization table. You must pay the entire amount of the principal plus the full amount of the interest that will accrue over the entire term of the loan. Again, prepaying on a simple interest loan carries no penalty, and you will reduce your payment, but with a pre-computed loan you are actually penalize you for early payments.

Do not blindly accept the RV dealer’s financing package.

Shop around and compare other offers rather than accept the RV dealer’s financing without hesitation. You may find that your bank or other credit providers offer a much better financing offer, and although the dealer financing may seem to be less of a hassle, you could easily end up with an expensive loan and more restrictive terms and conditions.

Shop around, but don’t “over” shop your loan at too many places.

Keep yourself from being overly zealous in seeking out the best deal and don’t fill out applications at too many financial institutions. They will check into your credit history, and it may make you look like you are desperate, which could lower your credit score, especially if you submit applications to more than ten institutions.

Be aware of your debt to income ratio.

Your debt to income ratio (DTI) is a key indicator of how you sit financially, and it is the lending industry’s measure of fiscal health. You can figure your debt to income (usually household) ratio by dividing monthly minimum debt payments (excluding mortgage or rent, utilities, food, entertainment) by monthly gross income. For instance, if you have a gross monthly income of $4,000 and are making minimum payments of $1,600 on debt (loans and credit cards), your debt to income ratio is 40% ($1600 /$4000 = .40). Typically, if your debt ratio is under 40% you are considered to be in healthy fiscal shape according to most lenders, although formulas may vary by lending institution. You may find that some lenders include your mortgage while raising the acceptable ratios and others will not include it. Even with the variations that will result in different percentage outcomes, the overall concept is the same: a debt to income ratio compares debt load to income.

Be in a position to put at least 10% down on your purchase.

Across the board and with few exceptions, banks that finance recreational vehicles, haulers, motorcycles, and boats will ask for you to lay down at least a 10%, and there are only a handful of lenders who will do 100% financing. You are asking for the red flag of alert to a lender if you cannot pay at least 10% down on the purchase price. Beware of the rampant credit scams that offer you 0% down and deferred payments; you will most surely end up paying significantly more for these types of loans.

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