Do you know the best type of loan to get when purchasing an RV? Learn the difference between the two main types of RV loans–unsecured and secured–and why some RVers choose an unsecured loan.
Most customers purchasing an RV require a loan. Similar to the auto market, financing is common. But the cost of a typical RV can vary drastically. Depending on the type of RV, year, and model, prices can range anywhere from a few thousand dollars to a few hundred thousand.
There are two primary types of RV loans–secured or unsecured. Here we look at both loans and discuss what purchasing situations might be better suited for an unsecured loan and why.
Secured loans
A secured loan requires collateral wherein the lender has a security interest in the collateral, meaning that the RV could be legally repossessed if you stop making payments on the loan.
The upside of a secured loan is that banks and lenders offer a lower interest rate on your loan. The same goes with your credit score: you might still be able to get a secured loan with a less-than-perfect credit score.
Why? Because the lender has other factors that reduce the risk of the loan.
Factors for any loan include things like your FICO credit score/credit profile, loan amount, cost of the RV, down payment, length of the loan term, and the value of the collateral. And these factors change depending on the type of loan.
In the case of a secured loan, the collateral value and the down payment alleviate the lender’s risk, so they are more willing to accept a lower interest rate or less-than-perfect credit score.
Secured loans are best for longer-term loans, especially for higher-priced RVs. These loans function more like auto loans or mortgages. They require collateral and a downpayment, and these loans have a loan term of up to 20 years.
Why a secured loan might not be for you
In a secured loan, the lender mitigates risk because it still has a security interest to the collateral (the RV) for the duration of the loan. But that’s where secured loans get tricky. Lenders tend to restrict financing due to age, mileage, some types of RV’s and usage.
Unsecured loans
Unlike secured loans, an unsecured loan doesn’t require collateral. If you’ve ever taken out a personal loan, it was likely unsecured, meaning it was based more on your FICO credit score and a lender’s internal scorecard plus other factors that determine your creditworthiness.
The same goes with unsecured loans for RVs. If you have a good FICO credit score and can reduce the risk factors for the lenders, they are more likely to offer a competitive rate for an unsecured loan. Unsecured loans are often used when purchasing older or out-of-lender program RVs. Other factors include your income and other proof of financial stability.
Unsecured loans have an added benefit because, unlike a secured loan, you can apply the loan to more than just the RV itself.
Why an unsecured loan might be right for you
Unsecured loans are flexible in two ways. First, you have a better chance of obtaining an unsecured loan for a used RV, an older model, or a high-mileage RV. Second, you can apply unsecured loan amounts to expenses beyond the RV. Let’s break down both of those options.
Buying used
There are situations where a standard secured loan doesn’t make much sense or isn’t possible. An older RV. A high-mileage RV. For example, finding a secured loan to finance an RV with more than 100,000 miles or one that’s +20 years old can be difficult. For this, an unsecured loan would be an ideal option for a buyer with good credit or even for a buyer with challenged credit but at higher interest rates.
Consider an unsecured loan when a standard secured loan doesn’t apply to your purchase due to the RVs condition or age. Especially if you have reputable credit. An unsecured loan can also apply to RV models unlisted by JD Powers National Automobile Dealers Association (NADA) and other leading valuation guides.
Flexible spending
Unsecured loans can be applied to more than just the purchase of an RV, a striking difference from a secured RV loan.
Secured loans are tied to the collateral (the RV), which means all of the cash is tied to one item. That’s why secured loans aren’t flexible. The loan pays for the RV alone, which can be repossessed if you break the loan agreement.
On the other hand, unsecured loans can be applied beyond the RV sale, extending to repairs, upgrades, insurance, related products, and more, even including vacations.
To learn more about unsecured loans and whether or not one might be right for your next vacation, accessory, boat or RV purchase, look to the folks at the Good Sam Finance Center to provide more in-depth information about your potential purchase.