When it comes to obtaining financing for vehicles, it's common to notice different rates between different types of vehicles. This is particularly evident when comparing RV loan rates with those of traditional auto loans. This blog post delves into the reasons why RV loan rates often vary from traditional auto loans, providing you with a clearer understanding of the complexities of recreational financing.
The Obvious Differences
First and foremost, the difference in RV rates to automobile rates lies in the type of unit being financed. These notes are fairly obvious, but let's have a look anyways:
- RVs: Are typically more expensive than most vehicles and often viewed as a 'luxury item'. This results in higher RV loan rates as lenders see it as a greater risk.
- Vehicles: They're considered a necessity for many people. With that necessity, comes some stability in knowing that a vehicle will need to be serviced for use on a day-to-day. This helps to mitigate some risk allowing them to carry lower interest rates.
Loan Term Length
Another crucial factor is the loan tenure. Recreational loans typically allow for a longer term and thus carry greater risk of default than a typical auto loan.
- RV loans: Often have longer terms, sometimes even as much as 15-20 years. The extended repayment period increases the risk for the lender, leading to higher interest rates. Most often you'll see that the lowest advertised rate comes with the shortest term.
- Auto loans: Typically have shorter loan terms, which reduces the risk for the lender, thereby keeping interest rates lower.
Unit Depreciation
The depreciation rate of the vehicle also plays a significant role. Let's explore that:
- RVs: They depreciate quickly in the first few years, but their value stabilizes after that period. The faster depreciation at the start adds to the lender's risk.
- Autos: They also depreciate over time, but the rate is generally consistent over the years, making it easier for lenders to estimate their value.
Usage Frequency
Lastly, the frequency of use impacts the rates.
- RVs: Given their seasonal use, there may be longer periods when RVs are not in use, which can increase maintenance costs and risk of damage. In addition, some might finance an RV to live out of. This is typically against the agreement that the applicant has signed off on and a major risk as there are strict rules against repossessing a dwelling in most jurisdictions.
- Vehicles: Regular use throughout the entire year implies better maintenance and lower risk, as mentioned previously. This contributes to better auto loan terms.
Understanding these factors can help you make more informed decisions about your recreational loan or trailer financing options. While RV loan rates might be higher than traditional auto loans, they come with their own benefits such as longer loan terms and the opportunity to finance a lifestyle of exploration and adventure. Make sure to research thoroughly and find a recreational loan company that understands your needs and can offer the most favorable terms for your RV loan. Happy RVing!