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.
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?
I’m a former small-town banker. The points made in this article are right on the money. When in banking, I was blessed with ethical ownership of the bank. No way would we be doing this kind of loan. Deliberately putting customers ‘underwater’ on financing is just plain slimey.
I have purchased two travel trailers in the past five years. I found it nearly impossible to negotiate a cash deal with RV dealer. The junk fees associated with the transaction with or without financing made the worst mortgage deal seem squeaky clean. Most of those fees are essentially pre-paid interest making the effective interest rate pretty dang high. For example, nearly $500 to title a lien-free vehicle in another State that only charges $20 for a title by mail.
I took out a home improvement loan, some money went to the house, some to the RV, all payments are tax deductable. Also purchased extended warranty on RV that is known to not fall apart.
Yes, it certainly does make one think. We bought our first RV outright, paying cash. That may have not been a good financial decision, but we got mad at the dealer/salesman and determined they’d get no benefit from us financing the purchase. So we didn’t.
We will take out a home-equity line of credit to pay for number 2 in order to arbitrage the difference between the interest rate we are paying versus the rate of return our investments are earning. I figure we will payoff the net (difference between the price of #2 and the trade-in allowance given #1) in five years; we’ll see.
If you’ve purchased a house, then you already know this. Just that the house holds some value.
Buying an rv is something a lot of people want,it is like a retirement plan for many working people ,so what twenty years finance really means is that is affordable to people who don’t have a lot of money to pay off the rv or make a big monthly payment. They end up paying more interest but it is the only way for many to make it affordable. , but if you think it is too much just stay out it..
We just purchased a trailer and got the longest term loan available. The reason: We did not have access to our money for a month. There were three other buyers standing in line. We paid the first payment and paid off the loan at the same time. Pennies in interest. The same trailer was available at another dealership for several thousand more. We could have waited and bought there, but it was a saving and worth it.
We did the same. Sometimes you can get good incentives in financing and just pay if off. We are going through that with a new truck right now. No way to just wait for the next one to come along and hope we get it. Can’t beat zero percent financing…we can pay it off if we choose or keep it for the term.
Hey Chuck thanks for adding this to current issue. Sent a comment to you stating the exact thing a month or two ago. Sucker born every day…. unfortunately. More transparency needed in RV industry, not naming anyone.
Except everyone’s financial situation is not the same. If it’s not your money, who cares how one spend theirs? I think articles like these are a disservice to a young family who loves the outdoors and want their kids to experience something other than a video game. I am well educated in the financial world. I know about interest, the cost of money and longevity of the product I purchase and my decisions based on that info. Not if someone agrees how I spend my money. BTW, I’m not in the young family group, have purchased in cash, paid off loans, taken loans depending on my situation.
I totally agree! Sometimes you take the lowest monthly payment with longer term and pay off as much as you can – it can cut the interest in half or more and you have control of your own money.
The problem is when financially ignorant (not meant as an insult) people see these ads, they get stars in their eyes. All they see is a cheap payment for their dream.
It is always Buyer Beware.
This article needs to be updated to the current market. Our RV purchased in 2018, is now worth more than the original list price plus the value of all the upgrades we have made. It is an appreciating asset and we claim it as a second home, so with the added value of deductibility of the interest paid, our 20 year loan has proven to be a positive. I know this isn’t normal but the RV marketplace has changed considerably in just this past year. We have over $40k in positive equity in a best case scenario and $30k worst case. Of course, we did make a $10k down payment in the beginning but even so, we could easily recoup that amount plus the additional equity.
That’s comical.
My TT is probably worth what I bought it for 4 years ago but I wouldn’t bet that will hold for very long. I’m fortunate enough to have paid cash.
The idea is true but the reality is, you need to have a buyer. Since the comment was made 1 year ago, I wonder if they still have the RV and the “equity” or has it depreciated more?
They aren’t selling like they were. Best to plan on paying off as quick as possible.
Big thank you Chuck, I was up late last night reading Saturday’s newsletter and just got to this topic this morning. When you finance items like a RV you really have to do your research, don’t let that Impulse be your guide.
Finance 101; the length of term, is your biggest negative factor in the formula Interest = rate x time (term). Rate almost is meaningless in the scheme of things, if you pay attention to the TERM.
Did a video a while back (https://www.youtube.com/watch?v=y7ekF_kgIP0) on just this subject. An $85k loan at 5% cost almost $50k in interest alone! Cutting it down to only 10 years, interest was slightly over $23k ~ less than HALF the 20 year loan. And a 3 year loan has a total interest payback of less than $7k, a THIRD of the 10 year loan and a SEVENTH of the 20 year loan! Put another way, that three year loan saves you about $43 THOUSAND dollars compared to the 20 year loan. You could have bought another half of an RV with that savings!
And what’s worse… if you add just another quarter of a percent in interest, your total is almost $3k more on that 20 year loan! Increase it to 6%? Almost $12k more in interest! Small percentage differences in that loan mean a huge difference in total payments… so buyer beware!
We financed our higher end Winnebago motorhome for 20 years…10% down, the rest financed. We were very careful in selecting our motorhome, rejecting several other mfg’ers in the process. The one we selected was not perfect, but we worked with the mfg’er to resolve the issues that came up. It was our only home for 7 years after retirement. W/o financing we could not have bought the RV. During our full-timing years we were able to pay several thousand $ ahead on the balance. It was paid off at 17 years with a remaining value of apx $50k. We have no regrets whatsoever.
Good for you. That’s the other side of the coin, called peace of mind.
If dumb enough to think any Rv will be worth much in 20 years you must be a fool. Even more dumb is the more you borrow for the longest term the lower the interest rate. It made sense to borrow $50 k for 20 years than pay cash. I can easily pay $3500 or more monthly and payoff in 2 years 4 months with my money growing. The real suckers are the lenders that will repo. They are even more dumb than the borrower that cannot afford toys to start with. No sympathy for either from me. I’d not blame ANY dealer for using stupidity to their advantage.
Well said
We considered financing our RV when we purchased it. We would have put about half the purchase price down and made payments for 5 years. However, our salesman angered us during the negotiation of the sale. It was not enough to cause us to walk away, but it was more than enough for us to do all we could to preclude the dealership gaining anything from making a loan to us. So, we paid cash and washed our hands of the dealership (Motorhome Specialist of Alvarado, Texas) forever.
That’s the American way! Everything is on credit. Why even the U.S. government is the largest debtor at 29.27 trillion dollars of external debt, translating to around 45% of the total debt owed. I owe nothing to anyone.
Ah, but you do my friend. You are in for your share of the 29.27 trillion. Guess how their going to get it from you?
News flash; date line June ’21, current occupant of the WH (if he even knows it) is deficit spending at a rate in %, not seen since WWII. Inflation is now on par with the 70s, this will all be ending soon, with a giant collapse within two years +/-. Bargains galore if you keep your powder dry.
Look to step out of your 401Ks into a guaranteed interest rate, no matter how minuscule. If you listen to your money advisors, you’re DONE. Never time the market, but we are in triple witching territory, so be ready to fish, or cut bait. That is all for now, carry on.
A lot of people pay every months for a time share they never use, a lot of people pay every month for a RV to set in their driveway or storage. Me I sold my Motorhome last summer and am on a 2 month car trip staying with friends and relatives and saving money on gas and RV parking spaces. Like they say “It’s your money, spend it like you want to”
Keep up the good work. I personally enjoy this letter. There are complainers everywhere. Some people just aren’t happy with anything.
Did I just get what you are commenting on is, being smart with your money is going to make some of us unhappy, WOW, please correct me if I am wrong.
Never, under any circumstances, allow the dealer to add sales/excise taxes to the amount being financed.
Consider this: If you only pay the 4% excise tax for South Dakota (low cost example) but finance it along with your RV purchase, get ready for a bit of sticker shock… If you paid $100,000 for your RV and financed it for 20 years at 6.99% interest, that $4000 tax bill will balloon to a total of $16,122.86. (Gasp!)
That’s a lot of fuel, food, tires, blah, blah, blah…
Not sure how you calculated that, but even at a straight 7% of the total $4000 for 20 years would add $5,600 to the original amount or $9600 over the term. But most loans today are simple interest where you pay interest on the unpaid balance so it definitely makes that cost higher, but you would actually pay about $7900 for the $4000 tax bill. Still a lot, but not as bad as it seemed.
Compounded interest.
I’ve heard if you are planning to pay cash for a car you should never tell the dealer until all negotiations are finished as they make their profit from the financing and if they know you are paying cash you will pay more. I wonder if this applies to RVs as well. One could always finance to get the best deal then pay it off being careful not to get stuck with early payoff penalties.
Did you know if you pay “cash” for anything costing more than $10,000 you come under investigation by the government as to where you acquired that cash? Had a car dealer tell me they didn’t want the paperwork involved in a cash deal on a $23,400 truck in 1993, he then explained to me and showed me the law, he told me to put 10% down and 3 weeks later go to the bank and pay it off before the first payment was due. It didn’t cost anything more to do it that way but it kept the government from getting involved. These are the kind of laws lawyers think up when we elect them and send them to Washington to represent us, it makes me think we are sending the wrong people as our representatives.
I didn’t have that experience when I bought my last car for $26k cash in New Mexico. There was no extra paperwork and no investigation of my finances. Maybe other states are different.
Of course, I didn’t give the dealer bags of paper money, which would have raised some eyebrows. I simply got a cashier’s check from my bank, which is the same as cash.
Hi Bob. These laws were put in place not to track the general public, but look for illegal deposits by drug dealers and terrorists. I work for a big bank and we are required to report these transactions. I feel better for it as I have nothing to hide…
Just an FYI.
Even better would be to pay %5K a month. $9K the bank might report it anyway.
Chuck, I agree 100 %. I would suggest if you can’t pay cash, at least make a big down payment. I don’t think Chucks article was aimed at buyers that take out 20 year loans and pay them off in a few years. Over 20 years, in addition to the monthly payment, things are going to break down and/or wear out. Tires , propane tanks , appliances, plumbing, wiring etc . If you have money in the bank to cover these expenses when they come up, ignore my comment. But if you don’t , listen to Chuck. Happy Trails.