Discover the implications of financing your RV and whether rolling an extended warranty into your RV loan is a smart move. Find out how to protect your RV investment the right way.
Purchasing and owning an RV is a significant investment, which is why it is essential to understand RV financing basics. People buying a new RV often opt for a loan to finance their vehicle over time. Financing is a great way to avoid paying the entire cost up front, and dealers even offer the option to roll their RV warranty into your loan. Although this seems like a convenient option, doing so could cost you more.
RV Financing Basics: How Does It Work?
RV financing is the process of paying off your RV purchase over time, typically in monthly installments. In RV financing, the owner will take out either a secured or unsecured RV loan to cover the cost of the RV.
RV buyers typically qualify for unsecured loans, meaning no collateral is required in the event of default. There is no risk of losing an asset with an unsecured loan. If you miss payment, only your credit will be impacted. However, defaulting may result in your loan being sold to a debt collection agency. Unsecured loanees need a strong credit score to receive a good offer.
RV loans offer varying terms and interest rates. A term is simply the amount of time it takes to pay off the loan. The interest rate, provided as a percentage, is the amount charged by the lender for borrowing. Unsecured loans typically have fixed rates and offer the lowest APRs to the most qualified borrowers.
The amount you qualify for depends on income, creditworthiness, and existing debt. Monthly payments are calculated based on the loan amount, loan term, and interest rate. When considering financing, it’s important to understand RV loan options and the loan terms available.
What is an RV Extended Warranty
An RV extended warranty, or extended service contract, is a protection policy that extends the service provided by the original manufacturer warranty. RV warranties cover the cost of repairs for unexpected failures, breakdowns, or defects. Although coverage varies depending on the policy type and RV model, extended warranties typically cover components such as the engine, transmission, HVAC, and major appliances.
Warranty and insurance coverage are both forms of RV protection, but they cover different things. Insurance covers damage caused by an incident, such as collision, whereas warranties cover unexpected breakdowns. Additionally, RV insurance is required according to state minimum coverage laws. RV warranty coverage is optional—those willing to take on added risk may opt to forego coverage.
RV owners purchase extended warranties to save money on repairs and preserve peace of mind. Owners have the option to purchase an extended warranty at the same time they purchase the RV. For those who want time to research options, third party RV warranty providers offer warranties to both new and used RVs. Plus, they typically provide a greater range of coverage with options to customize.
Many RVers wait for the manufacturer warranty expiration to secure extended warranty coverage. However, if you lock in coverage early, you qualify for the longest possible term at the lowest available price. Essentially, RV owners can purchase warranty coverage at any time, so long as the vehicle remains eligible. Keep in mind that all reputable warranty companies have caps on vehicle age and mileage.
Can You Roll an RV Warranty Into Your Loan?
Dealerships often offer the option to roll their extended warranty into your RV loan as a sales tactic. Bundling is framed as convenient and may seem like an intuitive choice; however, this is misleading. Below are four reasons not to finance your RV warranty:
4 Reasons You Should NOT Finance Your RV Warranty
1. Interest on the Warranty
When you roll your RV warranty into your RV loan, you are paying additional interest on a non-loan product. This can be avoided entirely when purchasing a warranty through a broker and opting for a payment plan through their program. Why pay extra when you don’t have to?
2. Reduced Flexibility
Financing your RV warranty locks you in with one warranty provider, eliminating other options. If you want to cancel your policy, you may be stuck paying it off until the end of the loan term. Warranty companies, on the other hand, provide the option to transfer or cancel a policy for a prorated refund.
3. Higher Loan Balance
Loan balance refers to the total amount of money the borrower still has to repay to the lender. Adding the RV warranty will increase the loan balance, therefore impacting the loan-to-value ratio and potential options for refinancing.
4. Warranty May Expire Before the Loan Ends
The loan term will almost always outlast the warranty term, creating an instance of misaligned timelines. This means you would still be paying installments—and—interest on a policy that is no longer active.
A Better Way to Buy an RV Warranty
Industry experts recommend buying the warranty separately from a trusted third-party provider. That way, you can use a credit card or payment plan without rolling into your RV loan. Be sure to choose flexible, customizable warranty coverage to maximize your options.
How to Budget for Both Your RV and Your Warranty
Budgeting is an essential step in the process of planning a big purchase. Set realistic goals and expectations with the following strategies:
Determine Needs
Define your travel goals and consider what type—and extent—of protection you need to secure for your RV.
Assess Finances
Refamiliarize yourself with your current financial situation. In a spreadsheet, categorize and add up all your monthly expenses. Determine what you could comfortably afford, and be sure to factor in unexpected expenses.
Estimate the Total Cost
Factor in all expenses associated with RV ownership, including the cost of taxes, RV warranty, insurance, and operating costs. Obtain free RV warranty quotes and insurance quotes to compare coverages. Remember, it is better to overestimate costs than underestimate.
Protect Your RV Wisely
Understanding the ins and outs of RV financing will prepare you for the sales pitch you will face at the dealership. Before you even set foot on the lot, research third-party warranty companies to compare coverage, reputation, and price. To best protect your financial interests, we strongly recommend keeping your RV warranty and RV financing separate. Receive a free extended RV warranty quote to protect your investment today—interest free.
