Why Financing the RV Purchase Makes Sense

Cash is king, and so, especially in these times, conserving cash for emergencies and other unanticipated expenses makes sense. Paying cash for the purchase of an RV depletes cash that may well be needed later on. That is why financing the purchase of an RV is the way to go, especially in these days of competitive interest rates. Using cash to purchase an RV turns that cash into an "illiquid investment," not readily available if and when the cash is needed.

There are several ways to finance the RV purchase. One way is to finance it through the RV dealer from which it is purchased. This kind of loan is called an "indirect loan." The dealer will quote an interest rate for the financing, runs the credit check and completes all the paper work, which is normally done at the time of the purchase. Some time after the sale, the dealer then will sell the purchase contract to a bank. The payments due on the RV are then made to the bank, as the dealer no longer has any interest in the purchase contract.

Another way to finance an RV purchase is by a "direct loan." The RV buyer goes directly to a bank or credit union or other lender, such as an automobile finance company, and finances the purchase "directly."

Shopping around for the best rates to finance an RV purchase is critical. Compare rates among banks, credit unions, and other lenders. "Direct" loans can take longer for approval, because the borrower has to provide whatever documentation the bank may need in order to determine whether to make the loan directly. Documentation usually includes pay stubs, a financial statement, a credit check, and if self-employed, several years of tax returns. How long it takes for loan approval is strictly a function of the particular lender. Where comparing rates, ask how long it takes for loan approval and whether it is possible to get pre-approved for the purchase of an RV. Loan approvals usually are for up to a specified amount and good for a certain period of time. Being pre-approved makes the purchase of an RV that much easier and quicker.

In deciding whether to finance the RV purchase, there may be a potential tax advantage in doing so. Depending on whether the purchase is financed by use of a home equity line of credit or a home equity loan, interest may be deductible. So, in addition to comparing loan interest rates, consult a tax advisor for the best way to structure the purchase of the RV. Other potential tax advantages may apply in a particular situation.

Unless absolutely flush with cash, using that cash to purchase an RV does not make sense. Interest rates for financing an RV are not much higher right now than the interest rates paid on money markets, certificates of deposit, and other places where cash is stashed. Given the upturn in the stock market, available cash may be better put to use there than to deplete cash reserves to purchase that RV.