By: Joseph McKinney of Oregon Roads
I’m reading the business section of this morning’s newspaper and note that Treasury bill rates have dropped to their lowest level in 3 weeks, but WHO CARES! That’s not important news to most of us.
On the same page is an article on the oil market and the price of a barrel. That’s related to the price we pay for gas, so it’s closer to home, but still not germane.
So I go to Bankrate.com for data and averages. They quote a 30-year mortgage rate of 3.68% APR. They quote a 5-year auto loan at 2.78% APR, but when I look through their pages I find a range, stretching from 2.39% all the way to 3.59%. That is a surprise because I can originate an auto loan for my A+ credit customers at 1.99% APR. Why are my rates below the threshold of believability?
Then I read, still at Bankrate.com, that “Interest rates on RV loans are closely tied to auto loan rates”. Now Bankrate is losing credibility. I’ve been lending on “rolling stock” (anything with wheels and a title where I can perfect a lien) for over 30 years and I’ve never heard or experienced such a correlation. Bankrate quotes an RV loan rate of 5.99% APR. Something is wrong with this picture.
At Oregon Roads we offer a range from 3.89% to 6.99% APR. Why would someone pay 6.99%? Because they’ve marginally approvable credit, not much down payment, and they’ve selected an older coach yet want longer term financing.
There’s a matrix that determines a buyer’s rate. The 3.89% APR rate is only available on a brand new RV, the buyer must have a credit point score above 760, and the lender is only financing 80% of the invoice. That is rare. Imagine making a down payment in an amount that equals the dealer profit, plus 20% of the invoice, plus sales tax and tag fees, and any other items, perhaps an insurance product like a service contract. Don’t get me wrong, people do make significant down payments, but it’s not common. In some way, it’s counterproductive, because the buyer is losing some tax benefit, the deductible interest.
Expect your rate to be a little higher if you don’t have stellar credit, make only a 10% down payment, and you’ve selected an older coach. Also, expect that you will need to provide your 1040’s to verify the income you’ve claimed.
There’s good news too. The floodgates have opened! Where RV credit has been restricted since the failures and repossessions of 2008 and 2009, there are no restrictions today. We represent a dozen lenders and they are clamoring for more business. We’ve had 5 to 6 years of relative economic stability. Banking and lending are based on stability and the borrower’s ability to make their payments. I have not seen the banks being this aggressive in the last decade and rates are still near historic lows. This is an excellent time to be applying for RV financing.
Comparing RV’s and RV loans is a complicated process. Would I advise someone to buy a new, more expensive coach because the rates would be less? It’s not that easy and it’s a personal decision. My advice is to work with a finance professional, meet and discuss the options, discuss your preferences and come to a decision that fits your needs. It is complex for finance professionals too, and I’ve learned that each client has their own criteria and “comfort zone”. I don’t believe that searching the internet will offer the best results. Work through the loan process with someone who has experience, someone who listens and who can be trusted.
When the shoe’s on the other foot, and I’m the buyer, I get pre-approved so there are no surprises. I often shorten the term, because longer terms mean more interest and expense. I’ve never taken a mortgage longer than 15 years. My car loans are on shorter terms too. If the payment were to be too high, I’d hear my mother’s voice saying “that means you can’t afford it”. She was a genius.
{ 0 comments… add one now }