July 6, 2023
Fulfilling the dream of becoming the proud owner of a boat or recreational vehicle is exciting. For many of us, it qualifies as a life event. In fact, it might be such an exhilarating experience that you might be tempted to simply go with the flow, overlook any troublesome details and trust in your friendly salesperson’s guidance. If you’re going to be financing your dream through an RV loan or a boat loan, however, you need to be smart about how you do it. Here are seven mistakes to avoid when financing a boat or RV.
1. Not Researching RV or Boat Financing Options in Detail
Finding the right loan for your set of circumstances can take time. Both RVs and boats can vary widely in price and worth, and sellers can range from full-service dealers to private individuals. Here are some things to consider about price of the RV or boat and the lender:
- Price: If you’re considering a less expensive purchase, you may be able to apply for an unsecured personal loan. If you want a more costly type of unit, you’ll need a secured loan that will most likely list the purchased RV or boat as collateral.
- Lender: Dealers may offer their own promotions and financing, but you also have the option of getting a loan through a bank, credit union, or other reputable online financial institution.
Each lender typically has their own set of terms and conditions for the types of loans they offer. To find the best deal, carefully compare the offered interest rates, the term or length of the loan, and the repayment plan conditions. Always pay attention to any associated fees and the line that shows what you will have paid in interest and principal by the term’s end.
2. Failing To Calculate a Realistic Budget
The cost of a owning a boat or RV extends beyond a monthly loan payment. In addition to insurance, registration, maintenance and repairs, you’ll also need to ensure that you’ll actually be able to afford to use your recreational purchase. You may need a trailer to transport your boat, a trailer to haul another vehicle behind your RV, or adaptations to a tow or towed vehicle to make it all work. A budget should also include expenses like fuel, slip and docking fees, campground utility fees, associated amenities, and food and entertainment. If your homeowner’s association bars you from parking your RV or boat at your home, you’ll also need to arrange for storage.
3. Taking Your Credit Score for Granted
Your credit score will directly impact your budget, so know what it is before you start looking. A lower credit score will most likely correspond with a higher interest rate on your loan. You may not be able to afford as much RV or boat as you thought you could because more money will be added to each payment from the higher interest rate. You may even have an item in your credit history that could jeopardize loan approval. In some cases, you may be able to correct issues that are lowering your score or work on improving your credit score before you buy. On the other hand, if you know you have a high credit score, you can press your lender for more favorable terms on the RV or boat loan.
4. Assuming Loan Terms and Conditions Are What You Expect
Always read everything especially the fine print. Lenders typically offer assorted financial products tailored to their own institution, so loan terms and conditions can vary widely from lender to lender and from product to product.
- Dealers offering financing may use multiple external financial institutions, all of which have their own specific requirements and approval processes.
- Contracts may have clauses that make a sale conditional until financing is finalized, allowing a dealership to make a deal under optimal conditions yet firm up possibly less favorable terms and conditions later.
Fine print is where you’ll often find those conditions as well as descriptions of any possible fees, penalties and other restrictions associated with the boat or RV loan. Once you’ve signed the paperwork, you’ll be legally bound to abide by it, so know that in which you’re agreeing.
5. Rushing Through Decisions
When you’re purchasing a boat or RV, wise decision-making takes time, research, and negotiation skills. Be sure to ask these questions:
- What type of boat or RV do you really need to be able to do the things you want to do with the people you want to do them with? If you underbuy, you’ll be trying to sell and buy up all too soon. If you overbuy, you may have more than you can enjoyably handle.
- How much are various models and amenities actually worth? How much are they selling for through other dealers or online sites? Moreover, how much will they depreciate within the first year and the years thereafter? Some types of boats, for example, depreciate more quickly than others. The same goes for RVs.
- What condition is the unit that you’re interested in purchasing actually in? Especially if you’re considering a used RV or boat, you may want to have someone qualified do a pre-purchase inspection.
Shop around to make sure that the deal you negotiate really is favorable and fair to you. Camper Report says about 85 percent of all new RV buyers pay significantly more than they should and “most RV manufacturers set the MSRP 30 percent higher than their realistic purchase price.
6. Forgetting Pre-qualifications and Preapprovals
While pre-qualification and preapproval are two different processes, they can save you time and headaches. With a prequalification or preapproval in hand, you’ll be better able to negotiate a serious deal that fits within your financial parameters.
- Pre-qualification is a less formal process than preapproval. To prequalify a potential borrower, a lender will estimate how much they might be willing to lend based on information that the borrower provides. Lenders may also do a credit check.
- Preapproval is more formal and detailed than prequalification. The lender will verify all of your financial information, run a hard credit inquiry and issue a preapproval letter. Preapproval letters set forth the amount of money the lender will loan and the terms and conditions associated with that loan.
Speaking with a lender to determine how much you’re eligible to borrow is a wise and often necessary step. However, be aware as you shop for the best boat or RV loan that multiple hard credit checks can whittle away points from your credit score, so reserve inquiries for those lenders you are seriously interested in working with and only when you’re prepared to actually buy.
7. Neglecting To Save a Down Payment
Most lenders require that buyers have a down payment to secure an RV or boat loan, and 10 or even 20 percent of the purchase price isn’t unusual. While this means that you may have to save a while to accrue the amount and pay a lump sum up front and out of pocket, it also reduces the amount of the loan principal and typically will get you a better interest rate and lower monthly payments. If saving for a down payment seems impossible, some lenders will allow zero-down boat or RV loans, but those can be difficult to find and often come with higher credit score requirements, higher interest rates, and larger monthly payments.
The Bottom Line
To ensure that you have the best experience possible financing your boat or RV, avoid the mistakes, and make careful steps: research your financing options, set a realistic budget, value your credit score’s worth, read the fine print, invest time to make wise decisions, obtain the necessary pre-qualifications and preapprovals, and save for a down payment that will help you get exactly what you want.
If you’d like to learn more about how to make your dream of owning a boat or RV a reality, you can start by exploring the La Capitol Federal Credit Union Boat and RV Loan page. We finance both new and used boats as well as motor homes, campers, travel trailers, motorcycles, ATVs, and tractors. When you’re ready to buy, reach out and let our loan specialists help you turn your dream into your next life event.