Is it better to finance or pay cash for an RV?

In this article, we will answer the following question: Is it better to finance or pay cash for an RV? We will discuss the pros and cons of paying cash for an RV and explain in detail what financing a vehicle means and what you should look for.

Is it better to finance or pay cash for an RV?

Many will agree that paying cash for an RV is better than financing one, as you will be able to save at least $1000 in interest. Before making a decision, we chose to do some research. We invite you to keep reading and judge for yourself. 

First, let’s begin with what many advise us, the advantages of paying cash for an RV:

  1. By paying cash, the RV will come into your possession almost immediately; 
  2. You get to keep the RV no matter what, if you wish so;
  3. As the current return on investments is low, you might as well use cash;
  4. Credit rates are high and increase the cost of ownership;
  5. By paying cash you are sure you can better negotiate with the seller.

Paying cash to finance your new RV has its advantages, but you could also lose:

  1. A longer or more extensive warranty for the vehicle;
  2. Various and offbeat insurances allow one to face the whims of life, unemployment, disability, financial loss in the event of destruction of the RV, etc.
  3. A maintenance contract, often interesting because it is sponsored by the brands,
  4. Finally, the RV’s capital depreciates immediately. Paying cash for your RV is like accepting that barely out of the shop you’ll have already lost 15% value.

What are your financing options for an RV?

Whichever financing option you choose, each has its pros and cons. For example, dealer loans rely on ease and speed of approvals, but creditors’ choices are limited and you will not have great bargaining power.

Essentially, there are six common ways to finance a new RV:

  • Pay cash
  • Re-borrow on your mortgage
  • Take out a bank loan
  • Tap into your retirement pension
  • Use RV financing from a dealer
  • Use RV financing from a financial intermediary.

If you opt to re-borrow on your mortgage, it will extend the term of your loan by several years, which means you will be paying a lot more interest than if you had taken out a low rate loan guaranteed only for your RV. This could effectively extend your mortgage for a period of 10 years or more.

When withdrawing funds from a retirement pension, you should take into account the overall relative performance of your pension fund and consider whether the capital left untouched for another period of time would result in a higher amount of capital and therefore even a larger retirement pension reserve. You pay no interest and are confident that you have purchasing power, but you have to consider the opportunity cost of not having the money invested.

Is it better to finance or pay cash for a second-hand RV?

For the most part, the above-mentioned advantages and options are valid for second-hand RVs as well. However, you may find that specialized RV loans are only suitable for new models or those less than three to six years old, and bank loans may charge higher interest for a used RV.

Financing an RV: everything you need to know

All manufacturers (perhaps excluding exotic RV makers) offer various financing solutions to consumers. Staggered over terms ranging from 24 to 84 months (sometimes longer in some cases), these plans have the advantage of being offered at a much lower interest rate than what a financial institution can offer.

0% interest financing options are plentiful, and the rate typically does not exceed 7% on most new models on the market. Unless you have access to a preferential line of credit, it’s hard to find more affordable financing elsewhere.

The main advantage of financing is that it ultimately allows you to own your vehicle. Also, even though we have access to enough funds to purchase our new RV today, it is often wiser because of the reduced rates to put that amount in the bank where it will earn more interest than the cost of financing.

A few tips though. Unless you have 0% financing over 72 or 84 months, it is seldom beneficial to opt for a financing plan with a term of more than 60 months. It should not be forgotten that the warranty for the protection of a new vehicle on all mechanical components never exceeds 5 years (with a few exceptions).

So, if we opt for very long-term financing, we can find ourselves in the unfortunate situation of owning a vehicle that is no longer covered by the warranty and which could then require major repairs. , but which we do not yet own. So you can’t get rid of it easily, especially if it’s worth less than what we owe on the loan.

Paying cash for an RV: Everything your need to know

While buying finance is relatively straightforward, paying cash requires a little more math and a little more thought. The financing option allows you to put a new vehicle in our driveway for a period varying between 24 and 60 months (36 and 48 months are however the most common terms) while paying only a portion of the vehicle. 

The remaining portion, known as the residual value, can be paid at the end of the agreement if one wishes to become the owner of the vehicle in question at that time.

Imagine you want to buy a vehicle worth $ 40,000 taxes and fees included. You are offered a 48-month lease plan with a residual value of $ 18,000. You will therefore have to pay $ 22,000 over 48 months. Then let’s take the same vehicle that was purchased over 48 months and set aside the interest for a moment, just to simplify it.

In the case of leasing, you will pay $ 458.33 (22,000/48) monthly. In the case of the purchase, your monthly payment will be $ 833.33 (40,000/48). Obviously, the purchase is more expensive, but then you are the owner. 

If after four years you resell the vehicle for $ 20,000, those four years will have a net worth of $ 20,000 compared to $ 22,000 in the case of leasing. But if your vehicle has been in an accident, or its resale value is just very low, and you can only have $ 15,000 left at the end of the term, the four years of financing will have cost $ 25,000 instead of $22,000 to end up at the same point.

And that’s the complexity. It is very difficult to predict the future. So you have to ask yourself a few questions before choosing between leasing or financing.

First, how long do you want to keep your RV? If you want to replace your vehicle every three or four years, leasing is usually the best option because you don’t have to suffer the depreciation associated with a purchase. 

You will also not have to resell your RV at the end of the contract. You should also know that the interest rate charged for a rental is sometimes higher than for financing and that if it is necessary to finance the residual amount to buy our vehicle after the rental, it will often be necessary to do it at a rate. higher interest.

This means that it is seldom beneficial to lease a vehicle and then buy it instead of just financing it upfront.

The bottom line

Ultimately, before choosing between finance and buying cash, we need to know how many years we want to keep our RV and how many kilometres we have to travel. Then we have to take out the calculator and calculate the total cost of each option according to our needs.

In closing, for those who wish to deduct expenses related to their vehicle on their income tax return, let us mention that the tax advantages are often more important when you finance the vehicle. For business owners, self-employed workers or representatives on the road, a discussion with a tax expert is essential.

If you have any questions or comments about the content, please let us know.

FAQ on Is it better to finance or pay cash for an RV?

What is the term of most RV loans?

RV loans can last from two to seven years, but the average is 60 months (five years).

Is it important to get pre-approved for financing before I start buying?

Pre-approval gives you the confidence to negotiate with a seller or private broker knowing you have a pre-approved limit.

How can interest rates vary from lender to lender?

Interest rates can vary widely. A rate of 5.99% for a specialized secured trailer loan for new utilities and those less than six years old could be increased to 12.95% by an unsecured bank loan for the same vehicle, or to 17.95% by a non-bank lender for a personal loan.

What factors will a lender take into account when setting my rate?

Lenders take a variety of factors into account when determining interest rates. These may include but are not limited to, credit history, assets, capital, and the stability of employment and location.

References

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