The Hows and Whys of Credit Scores in Recreational Vehicle Financing
Guest author – Lauren Cordell
A recreational vehicle (RV) is a combination of a vehicle and a home. It is a great way to travel the country without having to go through any flying inconvenience. Plus, you get to have your built-in accommodation.
Since a recreational vehicle is not your typical vehicle, it can be costly to purchase. That’s why RV loans exist to help you finance an RV. However, some find it challenging to qualify for an RV loan due to their credit score.
Why Credit Scores are Essential
Credit scores are a tool that lenders use to help determine your ability to repay a loan in the future. It is one of the factors lenders look at in deciding to approve your loan application or not. Whatever loan or type of financing you might want to get, there is a big chance that your credit score will be taken into consideration.
Credit scores are sometimes called risk scores because it helps lenders assess risks concerning your ability to pay off a loan. Having a good credit score means a more significant opportunity to get lower interest rates and convenient loan terms. On the other hand, having a low credit score may mean taking out loans with high-interest rates, fees, and unfavorable terms. Moreover, having a low credit score may not qualify you for any loan at all.
Scoring Models
Scoring models used to determine credit scores may vary from one lender to another. However, FICO Score and VantageScore are the most commonly used.
Fair Isaac Corporation developed FICO Score. It is the most well-known type of scoring model and is widely used by lenders. The score ranges from 300-850.
A variety of lenders also use VantageScore. Just like FICO Score, this scoring model ranges from 300-850. The three major credit bureaus (Equifax, Experian, and TransUnion) created VantageScore.
Below are the credit score ranges under both scoring models:
FICO Score
| Credit Score | Rating |
| 300-579 | Very Poor |
| 580-669 | Fair |
| 670-739 | Good |
| 740-799 | Very Good |
| 800-850 | Exceptional |
VantageScore
| Credit Score | Rating |
| 300-499 | Very Poor |
| 500-600 | Poor |
| 601-660 | Fair |
| 661-780 | Good |
| 781-850 | Excellent |
Factors that Impact Your Credit Score
Your credit score is a numerical representation of your creditworthiness and financial behavior. Lenders and creditors use it to assess the risk of lending you money or extending credit. The factors that affect your credit score will depend on the scoring model you use. Most of the time, it is affected by the following:
- Payment history (including on-time and late payments);
- Credit utilization rate;
- Total debt;
- Public records (like bankruptcy);
- The number of credit report inquiries;
- Credit accounts information (type, age, and number);
- The number of credit accounts you opened recently;
RV Financing Credit Scores
Based on the score ranges illustrated above, you now know what is considered bad credit and good credit.
Credit scores under poor and very poor are considered as bad credit. And those under fair, good, very, good, excellent/ exceptional are considered good credit.
The higher the credit score means, the more likely you will get approved by lenders for recreational vehicle financing of have the option of financing an RV. On the other hand, it is still possible for those who have a low credit score (like 550 or even lower) to qualify for a bad credit RV loan. However, it is best to note that bad credit RV loans may come with higher interest rates and may need a big amount of downpayment.
RV Loan Interest Rates and Terms
The interest rates and terms of RV loans will vary from one lender to another or the amount of cash you are applying for. You can freely use an RV loan calculator to know your loan’s total cost over the loan term. Moreover, loan terms for buying a camper usually lasts for 15 years.
Most of the time, borrowers like to choose shorter loan terms (usually 24 to 48 months). This is because the interest rates tend to be lower than longer loan terms. But, it may require a better credit status and a larger down payment.
5 Steps to Finance an RV
Planning to purchase an RV but don’t know how to start? Here are steps you can take:
1. Create a Budget
It is vital to set a budget when it comes to RV financing. Besides knowing what type of RV you want, it is also right to choose what you can afford. That way, you can save yourself from hurting your finances and causing an even bigger financial problem in the long run.
In creating a budget, you have to consider how big or massive you want your vehicle to be. Smaller RVs tend to be cheaper than bigger ones. However, having a smaller RV would not make any sense if you plan to travel with a large group of friends.
You should also consider the repayment terms. RV loan terms may run from 10 to 20 years, depending on the loan. A shorter loan term may have a higher monthly payment, but you get to pay the loan faster. On the other hand, a longer loan term offers you a lower monthly payment but might charge you more in interest.
2. Save for a Down Payment
Most companies will need you to give a downpayment. They usually require 10% to 20% of the purchase price to be given as a down payment. Moreover, if you choose to give a higher down payment, it may reduce the total loan cost.
3. Review Your Credit Score
As stated, your credit score is a vital factor in your loan application. It is best to check your credit if you plan to apply for a loan. By doing so, you will be able to fix any errors and have a chance to improve your credit. Check https://erctoday.com/ertc-funding/ for more credit score tips.
4. Choose What Type of Loan to Get
You can either choose to get an unsecured personal loan or a secured vehicle loan in RV financing. An unsecured loan is great if you don’t want to risk losing any of your assets plus, it can offer fast funding and prequalification. On the other hand, a secured vehicle loan offers lower interest rates and can easily be acquired for people with low credit scores.
5. Shop Around
Interest rates and terms will depend on each lender. Hence, it is best to look for and compare lenders. Doing so will help you decide what loan to get.
Takeaway
Your credit score plays a very significant role in RV financing. If you want to get the most convenient deals on your RV, it is best to have good credit. Hence, if you have bad credit, work on ways to boost your credit score.
Author Bio
Lauren Cordell is a financial advisor. She is fond of traveling and keeps records of her travels to reminisce. When taking a break, Lauren likes writing about making the best of her travel plans.