Things to Know Before Applying for a Zero-Down RV Loan
Updated on March 11, 2024 / 4 min read
Recreational vehicles (RVs) have recently gained popularity due to their flexibility. They allow people to design their itineraries and experience different locations at their own pace. They combine transport and accommodation in one unit, eliminating the need for separate bookings. That being said, buying an RV is an expensive affair and demands careful planning. To ease the financial burden, many buyers consider RV loans, which can help spread the cost and make ownership more manageable.
RV loans
Just like cars, RVs come in many sizes, trims, and other options for users, such as motorhomes, camping trailers, travel trailers, toy haulers, etc. This can make buying an RV a rather complicated process. Buyers can find small, used RVs at a starting price as low as $25,000, while new, luxurious models may exceed $1 million.
Given these costs, most people turn to RV loans to finance their purchases. These loans may have varying interest rates, loan terms, down payment requirements, etc. Banks, dealers, credit unions, and other lending institutions offer these loans. Shopping around can help one find the best loan terms to finance their RV purchase.
The application process for an RV loan is similar to that of any other vehicle—one needs to meet the minimum credit score and annual income requirements and submit a formal application for pre-approval. At this time, the lenders may ask for some personal details.
- Full name
- Date of birth
- Proof of identity (official ID)
- Address and proof of address (such as a utility bill or lease agreement)
- Phone number
- Social Security number
- Employer’s contact information
- Proof of income (tax returns, W-2s, pay stubs, etc.)
Based on the presented information, the lender will finalize the loan agreement, including the repayment date and amount. Once the documents are reviewed and signed and the purchase is finalized, the borrower should start repaying the loan.
Buying an RV without a down payment
Down payments have become synonymous with most auto loans today. RV loans, too, typically require a down payment of 10-20%. This initial payment helps reduce the risk for the lender, allowing them to offer better loan terms, including a lower interest rate and a shorter loan term. Today, many lenders are open to offering no-money-down or zero-down payment RV loans, but they may have strict terms and conditions to protect the lender. The criteria for each loan may also vary greatly from one lender to another.
- Most zero-down RV financing options require collateral. This could be the RV itself, real estate, investment accounts, or home equity up to a similar value of the loan. This collateral helps in making the loan secure for the lender. But, defaulting on loan payments could also mean the bank/credit union will repossess and sell the RV to recover the borrowed amount.
- Having a high credit score is another important factor when it comes to loan approval. Lenders use this to assess the buyer’s creditworthiness and the likelihood of repayment of the loan amount. A FICO score of 670 is considered “good” and may help one find decent loan terms. Buyers may need a credit score of 740 or higher to get the lowest interest rate.
Preparing for RV loan approval
Before applying for loan approval, borrowers must take a few measures to improve their chances of approval.
1. Improve credit score
Make it a habit to check credit reports with all three credit bureaus a few months before starting the application. Look for any discrepancies that may affect the credit score and have them corrected promptly.
To further bump up the credit score, avoid using too much of the available credit. This is known as the credit utilization ratio, and it is best to keep this value under 30%. If the utilization ratio exceeds this limit, consider paying off some debts to bring the ratio down.
Lastly, do not apply for any new credit accounts while sending in an RV loan application. A request for a new account is always met with a hard credit check, which can negatively affect one’s credit score for up to a year.
2. Check debt-to-income ratio
Another crucial factor to consider is the debt-to-income ratio, which compares how much debt one has with one’s monthly income. This can be calculated by adding up one’s monthly debts and monthly gross income and then dividing the monthly debts by the monthly gross income. A DTI ratio of 43% or less is considered good. For a zero-down payment RV loan approval, buyers must keep their DTI ratio as low as possible.
Buyers who do not qualify for RV loans may also consider opting for a home equity loan, a personal loan, or a 401(k) loan to finance their purchase.
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