Van Conversion Financing

If you're considering a van conversion but don't have the funds readily available, there are financing options you can explore. However, it's essential to understand the pros and cons of taking out a loan for a van conversion and carefully consider whether it's the right decision for you.

RV Loans: The Basics

• RV loans can be a good quality of life investment but are not a good financial investment.
• RVs depreciate quickly, losing 20-30% of value in the first year. Buying used can save money.
• If you plan on going full-time vanlife, you can consider it similar to getting a loan for a house, but with a smaller loan amount.
• Most people should only consider this route if they will be switching out their house for a van.

Understanding Loan Terms

Before diving into the world of RV loans, it's crucial to understand the basic terms associated with them:

1. Loan Amount: The total amount of money you borrow, like $15,000 for a van.
2. Interest Rate: The cost of borrowing money, usually expressed as a percentage. If your interest rate is 5%, you'll pay an additional 5% of the loan amount each year. For cars, this is typically 6-7%.
3. Term: The length of time you have to repay the loan. For example, a 5-year term means you'll make payments for five years. For cars, this is typically five years.
4. Monthly Payment: The amount you pay each month to repay the loan. It includes both the principal (the amount borrowed) and interest.
5. Credit Score: A number that represents your creditworthiness. Higher scores usually mean lower interest rates.
6. Down payment: An upfront payment made, typically around 20%.

According to Motorbiscuit, the average monthly payment for an RV loan in 2021 ranges from $225 to $650, which is significantly cheaper than the average mortgage payment for a house at $1,811. Most lenders who offer RV loans require a minimum down payment of 10%. However, the more down payment you have, the lower your monthly payment will be.

Factors Affecting Loan Terms

Individual creditworthiness plays a significant role in determining interest rates for van loans. A credit score in the mid-700s or higher will likely secure the best rates. For example, a $15,000 van financed over seven years with a 4% interest rate and excellent credit score might result in a monthly payment of approximately $208. However, if your credit score is lower and you're approved at a 7% interest rate, the monthly payment could increase to around $238.

Use online tools like Bankrate's personal loan calculator to estimate your monthly loan payments: https://www.bankrate.com/loans/personal-loans/personal-loan-calculator/

Where to Apply for RV Loans

There are several places you can apply for an RV loan, including:

• Banks and Credit Unions: Contact your local bank or credit union and inquire about their terms, interest rates, and eligibility criteria for RV loans.
• Online Lenders: Some popular online lenders for RV financing include LightStream, Good Sam Finance Center, Alliant Credit Union, Bank of the West, and My Financing USA. Investopedia recommends Alliant Credit Union and My Financing USA as top RV loan vendors.
• RV Dealerships: Many RV dealerships offer financing options for their customers and may have partnerships with lending institutions to provide convenient financing solutions.

It's generally not recommended to take out a credit card loan for an RV due to high interest rates.

Tips for Getting an RV Loan

If you decide to pursue an RV loan, consider the following:

1. Research Loan Rates: Explore various lenders, both traditional banks and online lenders, to compare loan rates. Consider credit unions and peer-to-peer lending platforms for potentially better terms.
2. Negotiate Terms: Don't hesitate to negotiate terms with lenders. Factors like down payment, interest rates, and loan duration can often be negotiated.
3. Think About Your Finances: Save up for the down payment first and budget for loan repayment.

To determine whether an RV loan is right for you, compare your current monthly household expenses with the estimated monthly loan payment and vanlife expenses.

RV Loans and Tax Deductions

RV loans may be tax-deductible if your RV has dedicated sleeping, cooking, and toilet facilities, allowing you to claim it as a second home for the purposes of the home mortgage interest deduction. It's best to speak with a tax professional who can advise you on your individual situation.

Final Thoughts

Before taking out a loan for a van conversion, it's essential to understand the terms and conditions of any financing option, the potential impact on credit scores, and have a solid plan for repayment. Carefully weigh the pros and cons and make an informed decision that best suits your financial situation and lifestyle goals.