So you're on the hunt for an awesome pre-owned RV, and you're considering an RV loan instead of taking on the financial burden of making one massive payment up-front. Well, we have great news! In Canada, you have a wide array of options for securing the best interest rates for your financial situation. In fact, it might feel like there are simply too many choices, and in this competitive marketplace, it's hard to know which dealers or lenders are giving you the straight scoop. No worries, though. This article is here to help you get a jumpstart, so you can secure the best RV loan with absolute confidence.
Is it Better to Finance a Trailer Up-Front or Explore Trailer Financing options?
The answer to this depends on you and your unique situation. Financing your home-on-wheels can lighten the load of making a big purchase all at once, while also helping you build credit with the right lenders. If you've got the cash handy and it won't mess with your everyday life, it's usually a good idea to skip the debt. But a lot of folks aren't in that boat, and they're better off making budget-friendly payments with the same end goal in mind. That said, it's super important to make sure your lender is legit. Keep reading for more info on that topic below.
What Credit Score Do I Need to Finance an RV or Camper in Canada?
In Canada, you'll be able to find flexible payment options to finance an RV or travel trailer with just about any credit score. In fact, your FICO score isn't the only thing lenders look at when deciding whether to approve your RV loan. This is why a credit check is typically required to secure your loan. It is not uncommon for applicants with excellent credit history to be caught off guard by an approval that's not at the prime interest rate that they expect. Other considerations that may impact your approved rate include debt to income ratio, lack of thick credit history, late payments and other outstanding RV loans. Still, the best bet is to explore banks or credit unions if you think your credit is pristine.
If you're looking to get an RV loan with poor credit, there are bad credit RV lenders who may be able to help. Less than perfect credit will likely mean a higher interest rate, however most financial institutions will offer monthly payment plan options to fit your budget.
Whether you are working with good credit or bad credit, it's important to weigh your options through various sources so that you can score the best interest rate available. It could be helpful to consider a dealership who brokers through multiple lending partners. Your best bet is finding one that offers RV financing for various credit scores, limits the number of credit checks they perform and doesn't make extra cash by selling you higher interest rates. This is why we are aligned with Revival Powersports, an online lender with simple to understand fees and can help get you set up the financing for your RV purchase. They process your loan online to get you set up with a RV loan so that you can shop like a cash buyer.
What Financing Term Options are Available for RV Financing?
There are multiple financing solutions in Canada when it comes to obtaining your RV loan, each with their own array of term options. While a dealership may offer attractive terms in their advertising, the reality is that most of their flexible, low-interest loans are reserved for the top tier customers. Luckily, private lenders have varied offerings that are typically flexible with repayment schedules to match your budget. Flexible terms from these lenders can reach up to 20 years to ensure a payment that fits your budget. Access to these lenders can be found through a partner dealers or online broker, such as our partners at Revival Powersports.
Secured Loan vs Unsecured Loan: What's the Difference?
Like we mentioned earlier, there are a slew of lending options when searching for an RV loan that fits your budget and needs. If you have excellent credit, you may qualify for an unsecured loan with your bank or credit union. Typically, Canada's primary banks will opt to push you towards a personal line of credit over a personal loan. While this option could score you low rates, personal loans are limited to those with high credit scores and who do not already have a large debt load. A downside for securing a line of credit is that your monthly payments typically won't have you paying off a substantial portion of the loan amount, meaning you might end up paying for a longer term than most RV loans typically would. It's also important to note that even though an unsecured loan doesn't use your RV or trailer specifically as collateral, they might still have the right to repossess it if you default on your loan.
For the vast majority of trailer financing, the lenders in Canada offer secured loans and use the financed asset as collateral. While some believe that these lenders only offer high interest rates, the truth is that there are competitive lenders who offer similar rates to the major banks. As options may vary lender to lender, it is important to lock in a preapproval so that you know your rates, lending caps, and loan term options before you start shopping. A secured trailer loan will require insurance, so ensure to take that cost into account so as to not cause damage to your personal finance budget.
If you're locking in an approval through an RV dealer broker, one advantage you'll have is that the book valuation will have to fall within a reasonable range. This protects the buyer against an inflated RV purchase price, ensuring the deal is fair. If the RV or trailer doesn't meet the book value, they might ask for a down payment or even suggest you find another option. Keep in mind that book value isn't the same as market value – we'll explain the difference and how it impacts your financing below.
Book Value versus Market Value Explained
The difference in value from book to market on a recreational vehicle may have you scratching your head, but the explanation on the difference is actually quite simple. The "Blue Book" is meant to set a consistent valuation for every year, make, and model of an RV or trailer, going back decades. Insurance companies and lenders use these valuations as a basic guideline for coverage. They usually break it down into three categories: "clean" (low miles and/or no damage), "average" (some miles or maybe minor damage), and "rough" (high miles or noticeable flaws). Market prices may fluctuate monthly, or even daily, but blue book values stay fairly steady with small changes occuring every quarter. Blue book value also doesn't consider any upgrades, which means that it is almost always lower than the real market value. An RV dealership will typically use book value when offering for a trade.
"Market value", on the other hand, is the number that actually reflects current prices based on similar units in the (you guessed it) market. This price can change a lot as demand and availability go up or down, and prices usually factor in upgrades and add-ons. That said, most lenders don't see these upgrades as a big deal and often don't consider labor costs at all when figuring out the value. The current "market value" of an RV or trailer is usually determined by the lender or insurer at the moment you ask about it. You can get a good idea on book value by looking within a few model years of your new or used RV in a Canada-wide search on KIJIJI. Still, this is only a base reference and may not project exactly to what a lender marks the value.
What are the Differences Between Trailer Loans and other Loans such as an Auto Loan?
When thinking about RV and trailer financing, most tend to compare it to their experience financing a car. Sure, there's some overlap between the two, but there are also some pretty big differences. First and foremost, a recreational vehicle isn't "essential" for daily life. Banks and lenders know that this means the upkeep could be lacking and making your regular payment may not be as much of a priority as your daily use vehicle. This extra risk is the main reason that rates for RV loans land 3-5% higher on average than automobile loans. If you're working with a low credit score and overall bad credit, expect a much larger gap as the risk is increased even further. The only exception may come in the form of manufacturer financing options, which we'll explain next.
Manufacturer Rates Explained: The Pros and Cons
Manufacturer trailer financing is sometimes offered by OEM chain dealerships, usually for brand-new RVs or trailers, as a way to lure people into financing directly with them. The rates are often better than what you'd find through private lenders, and they might throw in extras like cashback or no payments for a while.
Pros of manufacturer financing:
- If you're set on buying something new and specific, you'll probably find the best rates.
- You could score some sweet deals like cash back, zero down, or no-payment plans.
- You might be able to haggle the rate. Some OEMs give their sales team incentives to sell at a higher rate. If the salesperson thinks you're about to walk away, they might reel you in with an even better "one-time" approval.
Cons of manufacturer financing:
- Your choices are limited to that specific RV manufacturer and usually only brand new RVs.
- The minimum credit score requirement may be much higher than a standard loan. If you don't qualify for low rates, you could end up with an even higher payment than what a private lender would've offered. You'll never find bad credit RV loans offered through manufacturers rate options.
- Sales pressure can get intense. RV dealers may be offered bonuses for offering trailer loans at higher rates. They might also have quotas to meet, which can lead to pushy sales tactics.
- Most manufacturer RV and trailer loans are short which means a higher estimated monthly payment or a higher rate being offered once the promotional term expires.
- Some recreational vehicle manufacturers have hidden fees or require a large down payment to offset the interest that they will lose through the lower financing rate.
Avoiding Early Payment Penalties
Prepayment penalties are a major red flag when exploring trailer loans. Any reputable lender in Canada will make it clear in their agreement that they accept early payments and won't hit you with penalties for paying off your loan early. You'll usually find this info in your agreement under a "prepayment" section. We suggest inquiring about prepayment penalties early on in the application process so that you can bow out before taking credit hits.
Leasing vs. Financing an RV or Trailer: Which is the Better?
You might be wondering if leasing is a better option than financing. In our opinion, leases can be kind of tricky, so we'd suggest staying away from them. The main perk of leasing a vehicle come in the form of a tax break for your Canadian business. Unfortunately, it's tough to prove an RV as a business expense outside of niche industries.
For the rest of us who aren't operating a business, you'll find the shadiest business practices in the leasing sector. Some examples of nefarious business include tacking on interest up front, having steep prepayment penalties that make trading in for a newer model a no-go, strict mileage limits, customization restrictions, and terms ending in a non-zero balance.
On the other hand, when you secure trailer financing through reputable RV lenders, you basically co-own it with them until you have it paid off. Once you've paid off the loan and the balance is zero, the lien is released and you become the sole owner. In the meantime, you're usually free to make upgrades and customizations as long as they add value. These loans also don't come with mileage restrictions. In Canada, trustworthy RV lenders always let you make early payments, so you can save huge on the interest charged. Check out this related video which explains the math behind leasing vs. buying a vehicle:
Do Co-Signers Help to Get Better Loan Options?
Having a co-signer may help you secure trailer financing from a lender who would've turned you down otherwise. In most cases, however, if you're already approved - adding a co-signer won't help you get better interest rates. That's because the rate offered is based on the applicant with the worst credit situation. In addition, most RV lenders only allow for a common-law partner or spouse be added as a co-signor.
Can a RV Loan Boost Help My Credit Score?
Some lenders in Canada report your RV loan to credit bureaus like Equifax or TransUnion. When reported - making regular, on-time payments can give your credit score a lift, as long as there aren't other factors dragging it down. Keep in mind that your score might dip a little at first when you take out a loan due to the increased debt load. Talk to the lender or RV dealer that you're working with to find out if your payments will report to credit bureaus.
Keeping these tips in mind, along with some good ol' common sense, will help make sure you're scoring the best RV loan out there. Don't forget to read your contracts and get the lowdown on your payment amount, down payment requirement, how often you'll pay, and your loan term length. Ensure that you are in the know about any fees, since lenders and dealers both typically charge admin or doc fees. Make use of our to get a realistic idea of payments. Finally, do your homework and ask all the questions that you need to feel good about the terms. Always remember - it's the dealer or lender's job to make sure you feel confident in your RV loan choice.
For further reading, check out our other trailer loan resources:
Guaranteed RV Financing: The Truth Behind the Myth: Covering the real facts and everything you need to know about the range of guaranteed trailer financing options and securing your dream RV.
Bad Credit Trailer Financing: What Options are Available in Canada?: We explore affordable trailer loan options if bad credit is leading to declines at major banks.
New RV Buying Guide: What You Need to Know to Start Your Journey: If you're new to RV and trailer ownership, we cover a range of tips that will ensure you have an awesome adventure.