Should you refinance an RV loan?

As with other loans, the rates on loans for recreational vehicles have crept down in the past year. It's a great time to consider refinancing an RV. 

"You probably won't see RV loans going much lower than they are now," says Paul Hodge, chief operating officer at Columbia Community Credit Union in Vancouver, Wash.

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But unlike other loans, refinancing an RV is not as simple as one-two-three. Some RV owners may be able to save some serious cash by refinancing their rigs. But many others won't.

When not to refi
First off, there's little point in refinancing an RV if you don't hang on to it for a few more years. And many RVers won't. Lots of folks change RVs every three or four years.

"RV owners are a lot like boat owners," says Gary Fee, director of consumer loans at Boeing Employees Credit Union in Tukwila, Wash. "They're always moving up to the next bigger unit."

If you're planning on selling your RV in the next year or so, you might as well stick with your old loan. It's less hassle and there are plenty of other ways to save a few extra bucks a month.

Many RVers who purchased their rigs in the past year may discover that refinancing comes at too high a price. The reason? They're upside down in their current loans.

Upside down means you owe more on your RV than it's currently worth. It's a rather common scenario, especially in the first year of ownership when the value of a new RV drops by 40 percent.

"RVs have a propensity for huge depreciation once they move off the lot," Fee says. "Once you drive that thing off the lot you lose 40 percent and it takes a while to make that up."

To make matters worse, many RV owners sign on for long-term loans with very little money down.

Terms on RV loans typically range from 10 years to 15 years but can go longer. For larger loans, say $50,000 to $100,000 or more, many lenders will allow you to extend the loan term to 20 years.

Most lenders require less than a 20 percent down payment and many lenders require a down payment of less than 10 percent. There are even some zero-down loans.

Signing on for a long-term loan with little money down may seem like a good idea at the time -- it gets you on the road at little expense -- but it also puts you in a financial hole. Owing a whole lot more on a loan than what your RV is worth is not a good place to be.

And you won't be able to refinance your way out of that financial hole without shelling out a whole bunch of cash.

Banks and credit unions base the loan on the current value of the RV, not how much you owe. Many lenders will finance as much as 80 to 90 percent of the RV's current value. So if you owe several thousand dollars more than your RV is worth, you're going to have to cough up quite a bit of cash to qualify for a new RV loan.

"I've seen situations where it was $10,000 to $15,000 they had to bring in," Fee says.

Needless to say, these folks opted against refinancing their RV loans. It didn't make financial sense, even if you could knock, say, 1.5 percent off your loan rate.

"From a financial standpoint, you'd be better off investing $15,000 in a CD and paying the extra 1.5 percent," Fee says. 

Not sure how much your current rig is worth? Check out these Web sites. RV pricing data from 1986 to 2001 can be found on NADAguides.com. Pricing guides are also available from Woodall's, Kelley Blue Book and RV Buyers Guide.

RV refinance candidates
So, what RV owners should consider refinancing their loans now that rates are down?  People who have some equity in their RVs and plan on keeping the rig for a few more years.

These folks will like what they see when they shop refinancing rates. Most lenders have knocked down the rates on RV loans by 1 percent or more in the past year.

On larger RV loans, just pushing down the interest rate from say, 9 percent to 8.5 percent, can yield some serious savings.

Let';s say you have an $80,000 balance and 10 years remaining on your current RV loan. By refinancing from 9 percent to 8.5 percent you'd save $2,582.48 in interest over 10 years. By refinancing from 9 percent to 8 percent, you'd save $5,134.25 in interest.

Banks, credit unions and independent finance companies all offer RV financing. A list of RV financing companies is available on the Recreational Vehicle Industry Association Web site. The rate on an individual's RV loan is determined by the finance amount, length of loan and a person's credit quality.

RV rates
Rates on RV loans range from 7 percent to 8 percent all the way up to 15 percent or more.

 As with auto loans, many of the best deals are available from credit unions. In a recent promotion, First Financial Credit Union in Albuquerque, N.M., offered refinancing rates of 6.4 percent on RV loans. That's quite a deal.

As nice as the interest savings on a refinancing deal may be, it's important to consider the costs. You could end up shelling out $200 or $300 for title costs and an RV inspection. A few lenders even charge application fees.

"It could be up to 1 percent of a loan or a flat fee of $100," Hodge says.

So be sure to shop carefully. Avoid lenders that charge big fees for refinancing an RV loan.