Bad credit history? Discharged bankruptcy? Don’t give up your dream of owning an RV and enjoying the freedom of a low-cost vacation.
The first priority of good financial management is planning, according to Credit Canada. So if those plans include an RV, perhaps a way can be found.
A poor credit history or a bankruptcy in the background don’t necessarily mean that an application for an RV loan will be refused outright. One good possibility offered by some online credit companies is a special purpose loan. This will usually be a fixed-rate loan offered by lenders for
- motorcycle loans
- boat loans
- RV loans
- lease buyouts
- debt consolidation
About Past Bad Credit RV Loans
A credit company may describe an RV loan for someone with a bad credit history as a “superior loan” that will “save your hundreds of dollars in interest.” Take that with caution. Shop around and compare interest rates and payment schedules to make sure that the payments are affordable.
A bank may also advance a loan for an RV, but banks tend to consider RV loans as “bad debt.” The Bank of Nova Scotia, in its advice on credit management suggests “Borrowing money to purchase a luxury item that has no future financial value” is an example of a bad debt. Why? Because where a car is considered almost a necessity for getting to work, an RV is considered a luxury item. An RV is a depreciating asset. Like a new car, an RV loses value the minute it leaves the dealer lot, and continues to lose value with every year and every mile. But unlike the car, an RV tends to sit in the yard much of the time, which in the bank’s view provides little future benefit¬.
So if the banks, which are supposed to be cautious lenders, consider an RV loan to be a bad debt, even for someone with good credit history, why would other lenders be willing to give money to somebody with bad credit?
Why a Bad Credit RV Loan May Still be a Good Risk
There are some reasons why bad credit RV loans are made available.
- Low delinquency – RV loans tend to have a low delinquency rate, according to the American Banker’s Association (as reported at rvbroker.com). This means that RV loans can be a relatively good credit risk when compared to other types of loans.
- Brokered Risk – The risk of a bad credit RV loan can be spread around. A loan can be brokered among several lenders, so that in the event of a default, no single lender takes the full hit. This reduced risk may make the loan more acceptable to the broker who offers the loan.
- High Interest – Loans to those with past bad credit may come at a higher interest rate. The profit from RVers with a good payment history can offset the loss from a few loans that go bad.
- Secured Loan – An RV is collateral that can be resold, if only for part of its value, so that a defaulted loan is not a total loss.
- Volume – An online lender with a large client base will be able to balance out a few bad credit loans against a solid base of good credit loans, thus reducing the risk exposure.
- Debt Consolidation – The RV loan can be made part of a total debt plan. If the credit company knows its clients are working to manage things well, it’s easier to give them loans.
If the dream of family camping in the comfort and safety of an RV still shines, past bankruptcy or past bad credit doesn’t have to make the dream die. Shop carefully for the best rates, and work with the lender to carefully manage the debt.