What does financing an RV for 20 years really mean?

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By Chuck Woodbury
EDITOR
I don’t know if you can read the small print in this ad, but Camping World is enticing buyers to finance this entry level motorhome for 20 years. Camping World pushes such long-term loans to anyone it can sucker into doing it. Other dealers offer the same deal to stay competitive.

In this ad, the cheaply built 28-foot Thor Freedom Elite is offered for $76,995 (MSRP $102,300) — $469 a month at 5.25 percent interest. That’s based on 10 percent down and payments for 20 years. At the end of 20 years, the total amount paid on the RV will be roughly $120,000! The RV will be worth next to nothing.


Or how about this — paying that $120,000 for 20 years averages $16.40 a day for 7,300 days. Or, put another way, 68 cents an hour for 175,200 hours!

At the end of its first two years, the RV will be worth roughly $51,000 but the buyer will still owe about $65,000. So if something happens and the new owner must sell the RV, he or she will need to write a check for around $14,000 just to come out even. It doesn’t get much better for most of the loan.

What a deal! Pick up this 1998 Seabreeze motorhome for $5,300 on eBay. What will a similar RV bought today be worth in 2038? And how much will it cost if financed for those 20 years?

Think about that 20-year loan for a moment. Let me try to provide some perspective. If, today, you were about to make your final payment on a loan you took out 20 years ago — that would have been in 1998 — here’s what was going on in the world at the time:

•Google.com was founded by two Stanford University students.
•President Bill Clinton admitted he had an “improper physical relationship” with intern Monica Lewinsky.
•The average price of gas was $1.15 a gallon.
•Seattle quarterback Russell Wilson was 10 years old.
•Pop and country star Taylor Swift was 9 years old.
•Pop star Justin Bieber was still in preschool.
•Camping World and Good Sam CEO Marcus Lemonis was too young to drive.
•St. Louis Cardinals first baseman Mark McGwire broke baseball’s single-season home run record.
•Assembly began of the International Space Station.
•Europeans agreed on a single currency, the Euro.
•Apple Computer unveiled the iMac.
•Frank Sinatra and Tammy Wynette died.

And. . .
•It would be 3 years until the terror attack on the World Trade Center.
•It would be 5 years before the start of the Iraq War.
•Facebook would not debut for 6 years, YouTube for 8 years.
•The first iPhone would not be sold for 9 years!
•And you were 20 years younger!

Do you have an infant child or grandchild? If you take out a 20-year RV loan today, that child or grandchild will be halfway through college before you make your final payment!

Kinda makes you think, huh?

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Lori

I’m in my 12th year of making payments on my ’05 Itasca Cambria (Class C). I haven’t seen here the upside of this discussion, which is this: the deduction of interest paid yearly on the RV on my 1040. That helps — a lot — and payments are affordable (one has to have at least ONE fun expense in life). I’m not upside-down per NADA. In fact I’m 12,000 to the good. And, most importantly, my RV has NO manufacturing errors or defects. It was built back in the day when there was a Quality Assurance department at Winnebago.
Bottom line: I’m perfectly satisfied and willing to pay the cost of having a perfectly constructed RV.

Louie

Chuck, just curious how you purchased your first RV?

CJ

What do you recommend if this happens and you want to sell the RV? How to get out from under an upside down loan?

Captn John

Not to take the 20 year loan on my 5er would have been a dumb mistake. I make much more on my investments than the 4% note. Besides, I’ll have it paid off in 3 – 3 1/2 years anyway. Writing a check for $3000 or more each month is easier than seeing my portfolio drop by over $50K.

M Trnka

We just purchased a new 5th wheel. We traded our present 5th wheel in on the deal. The bank that the dealership used offered one half of a percent less interest rate for a 15 year loan over a 10 year loan. We took the 15 year loan, however we will be paying extra and it will be paid long before 10 years. This could easily spell disaster if a consumer only paid the required payment for 15 years.

Paul

Borrowing for 20 years on a depreciating asset is in many cases not wise, but as with most things, it depends. It depends on exactly what (make, model, etc) you are buying, it depends on the interest rate, it depends on how you handle both the loan and and asset, and it depends on you & your behavior. We bought our first (and only) RV shortly before I retired. We did very extensive research for many years prior to narrow down RV types & manufacturers. We selected a quality RV, but closer to “normal” than a Prevost type. To this day we have not been even remotely tempted to trade for another. We were planning to fulltime, so used mutual funds we had accumulated for a good downpayment, but we could no more pay in full for the RV we bought than we could for the home we bought 10 years later … selling price for the RV was more than for the home! We got the RV loan at 5.9%. In the first several years of the loan I made 3 or so very substantial payments on the principle. Since those early years, the value of the motorhome has always been more than the loan balance. It is currently 18 months from pay-off and worth at least double what we owe. I realize that 20 year RV loans too often don’t turn out well, but that is primarily because of poor decisions up front and all along the way. We are quite satisfied with how our 20 year motorhome loan has played out, and plan to drive the beast into the ground before the time comes for us to be planted along side. As with most things it life, how it turns out depends a great deal on YOU.

Tom Rastall

This will end bad for businesses and financial institutions. Some years back leasing companies tried to put people into 7 year leases on used cars. When the vehicles started having problems, the customers stopped making lease payments and the businesses holding the leases’s got the vehicles back. The vehicles were now not worth anything and these businesses lost their shirts. Many went out of business. Same thing will happen with 20 year RV loans.

Darrel

The last 2 cars I bought the salespeople tried to get me to buy based on monthly payment amount. I refused to play their game and would only bargain on out the door total price.

AFTER that was negotiated and agreed upon monthly payments could be discussed. (I arranged my own financing in advance, then gave them the opportunity to offer a better (lower) interest rate).

NEVER buy ANYTHING based on a monthly payment. Only work with total sales price and drive the cost down.

Bill T.

Hi Chuck. Thanks for the article. My only issue is with folks talking all the time about depreciation. If you are worried about the depreciation value of an RV, perhaps you shouldn’t buy it in the first place. We bought our rig new in 2015, with a 20 year loan and we plan to keep the rig until we are finished traveling. With proper financial planning to pay out the loan in less than twenty years, we have a rig that no one has used before and we didn’t inherit other peoples junk. We paid our rig off this year, but it was nice to have the flexibility of knowing that we could pay only the minimum if we had to, for that month. Depreciation is relative. If you have no intention of selling the rig before its paid for, then worrying about depreciation or factoring it in to your plans is not and issue at all. Common sense prevails, if you can afford to have an RV, go for it. Enjoy it with your family. Life is too short to be the richest person in the cemetery. Again, if depreciation is a factor for you, then don’t buy it.

Sherri Eley

WE bough a used 5th wheel for our last of our life RV purchase. it is in excellent condition, Looks as if it was never used. So we saved a bundle on depreciation. The last new vehicle we bought and will probably be the last one ever is our Ford 250 diesel to pull the 5th wheel. It was purchased in AZ after a week or two of looking. and getting the best deal. I do however have issues with purchasing a used motor home. The one that we bought from Lazy Days in Florida was a mistake, we pumped another 10 to 12 thousand in that thing and it so turned me against ever owning a motorhome again. Before we finally unloaded it at a huge loss, we were afraid to pull it out of the driveway for fear we would not make it to our destination and back without a major breakown. WE went back to a 5th wheel and are happy wth it.

Paul Gerster

Everyone does not fit into the category you continually harp on. I could have paid cash for my RV however, the stock market is going gang busters right now and my financial advisor said I would be crazy to pay cash for an RV. He suggested the 20 year loan at an effective after tax rate of 4.58%. And why not when he is producing returns between 7.50% and 10%.

Bob Godfrey

Unfortunately people only live for the monthly payments and hardly ever consider the total cost of anything. If you look back at the housing “bubble” that nearly bankrupted many companies it was mainly due to ARMs being offered to people who had no business having a loan to begin with, a house of cards that came crashing down eventually when folks could not make the ever increasing payments. I know a woman who took her car in for an oil change and wound up with a new vehicle because the salesman promised to keep her payments the same, which he did, however the loan was simply made years longer and will probably never be paid off.

Troy

I have a 20 year loan at 4.99% on a 2017 Thor Challenger. I don’t see any problems with it. Now if someone actually plans on taking the full 20 years to pay the loan off that’s plain stupidity. Just like having a home loan you should be able to do a 15 year loan, but you get the 30 year loan for the ability to make lower payments on months where you want to spend money on something else. Never make minimum payments the norm, they should only be for emergency use only. Always pay off loans early, and usually there is a way to get someone else to pay it for you.

Debra

Great article Chuck. I hope it wakes up some people who may have used this extended financing. Unfortunately though too many people go this route for all their major purchases, not just RVs.

Tommy Molnar

“68 cents an hour for 175,200 hours!”

Wow! Now THAT’S the way to look at this.

Wayne Caldwell

Chuck, It just reinforces our ideas of not buying a new.car, truck, or RV. Truly, the last new ( ever before owned) car that I bought cost me $3,265.00 — a 1975 Fiat 128 4-door sedan when I was.stationed in Madrid, Spain. Our travel trailer that we bought two years ago is now 17 years old and the truck that we.bought two months ago is 3 years old. We refuse to buy a new.car/truck and pay an outrageous price and then face the 25% depreciation as soon as we sign the papers and then the key to start it. Agreed that we are taking our chances with used car problems, but with our ‘new’ truck, that price difference of about $25,000 will cover an awful lot of repairs when the time comes. Plus, by buying used, we were able to write a check for our trailer and then for our truck.