by Joseph McKinney of Oregon Roads
It is a pleasure to write about financing and leasing issues when rates are at historic lows. I have three decades of experience financing vehicles and a good understanding of the short history of financing prior to my career, and consumers have never before had such firepower.
Rates are historically low for the qualified, terms are generous, coach prices are modest, a few lenders still jockey for our business and most borrowers are using the interest payment as a tax deduction.
Coincidentally, there are ripe opportunities in real estate right now, for buyers with firepower. But in this unstable real estate market, I’m personally hesitant to act.
Is it time to act on an RV purchase? First, let’s consider the negatives:
1-The situation with RV’s is the same as with real estate. It is difficult today to get a loan (that’s “firepower”) if you have a bad credit history. That’s truer today than it has been for the last thirty years. The last four years have thinned the herd. Consumers who really didn’t have the staying power, the stability and ability to make steady payments even in difficult times, have lost their homes and their motorhomes. Some lenders have exited the business too.
Healthy lenders, including finance companies, banks and credit unions, returned to the market as soon as it stabilized. It’s ironic that when the banks were telling me that my applicants “didn’t have the liquidity and qualifications” for RV loans, my clients had better financial health than the banks.
2-If you are buying an RV at a discounted price due to market conditions; you must expect the value of your trade-in to be comparably impacted by market conditions. And now, just as it is with residential real estate and cars, it’s easier to trade up than down.
3-Expect to make a down payment or apply equity from your trade-in. With rates this low, there’s no room for error. Banks can no longer afford mistakes. They want to see “skin in the game”, because borrowers are less likely to walk-away from equity. The days of 100% financing are over. Ultimately that’s good for stability, and benefits those who keep their promises.
Now let’s look at the good news: things have stabilized with favorable conditions.
Compare the RV market to the auto market today. There’s been a bubble in the used car market. Used car sales have been on fire since late 2009. New car sales are finally taking off because used cars are priced almost as high as the new models. Demand finally caught up with supply. Could that be the future of the market for RV’s? The number of retiring baby boomers suggests consistent demand will return the RV market to its former vitality. The limited supply in recent years, due to reduced production, has also helped the market. That helps the consumer.
Why are so many recreational vehicles financed in Oregon? Have you discussed financing across the United States? It’s not exactly a level playing field. Oregon has the lowest transfer fees, and that makes a small difference, a small benefit to the consumer. But savvy consumers understand that not all contracts are created equal.
Finance contracts from Oregon finance companies, credit unions, banks and dealers have been agreed to by the Oregon Attorney General. Here we have distinct advantages. For example, early termination clauses and penalties are not allowed on retail contracts to consumers, and we use
simple interest financing. The net effect is a comparatively reduced payoff when you sell or trade your RV.
Now, looking down the road, I see opportunities ahead and I can’t help but feel bullish.
Rates drive sales as much as price. We all have our personal affordability index, our financial comfort zone. So when I look at how much I can now afford, at a certain monthly payment, and combine that with how much RV I can buy for today’s dollar, there is a compelling argument to make my move and soon.
Ben Bernanke, the Chairman of the Federal Reserve Board, says he will hold interest rates at this zero level for at least the next year. Know what that means to me? If I’m going to buy real estate, a vehicle and/or a motor home, I’m going to do it this year.
“Inflation, like the tide, lifts all boats”. If my purchases are subject to inflation, but my rates are fixed, my assets will perform while my costs are fixed low. So even if the worst case scenario occurs, price inflation, I’m covered. Because I locked in the historic low rates of 2012, risked little but gained plenty, I believe I’ve recovered from my relative losses in 2008.
Oh, did I tell you I’m the President of the Northwest’s largest leasing and finance company? I deal with these issues daily. Please call me with questions about financing your next or re-financing your existing coach or vehicles. Oregon Roads has partnered with underwriters representing the most consumer oriented banks and credit unions. We customize leases for our commercial clients, consult with consumers till things make sense, and deliver it all with that relaxed, Oregon style.
Yes, it’s easy and a sincere pleasure to write about good news, and that’s what I see when I look down the road today. Happy trails to you.
Joseph McKinney has been the President of Oregon Roads, headquartered in Eugene, since 1989. To reach Mr. McKinney, call 800-944-0227 or email him at jm@oregonroads.com.
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