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Old 07-04-2015, 11:57 AM   #1
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First Time Buyer - Should I Finance?

We're going to pick up our first RV next week. In our mid 50's, my wife and I have saved for years and always thought we"d make our best deal by paying cash. I received a call from the business manager who told me that we're approved for a significant portion of the cost at a rate of 4.25%..and that the interest might be tax deductible. By financing, he said we would be in a better position to negotiate if and when we wished to trade in for another coach. I'm doing better than 4.25% on my investments and am looking for input from more seasoned RV veterans!

Any thoughts are appreciated
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Old 07-04-2015, 12:25 PM   #2
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That is a strictly personal decision; do what you feel comfortable with. The dealer is getting a kick-back on loans, so naturally he wants you to finance. If you can work a better deal with financing, go that route then pay it off early. (Make sure the loan does not have an early payoff penalty.)
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Old 07-04-2015, 12:32 PM   #3
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If you are doing better in your investments it makes sense to finance provided you understand all the costs (any additional fees that they charge etc). Also, can the loan be terminated early if you want to pay if off sooner.

I had the cash to buy the coach we currently own but decided to take out a loan through our bank, the rate wasn't that favorable but I knew I would pay it off early (less the 1 year). I've done this with vehicles and property over the years to maintain a good credit score, usually pay the loan off in less then 1 year.

As to statement of "financing will help you negotiate your RV" , I don't understand that rational.
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Old 07-04-2015, 12:32 PM   #4
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Quote:
Originally Posted by MrBelvedere View Post
We're going to pick up our first RV next week. In our mid 50's, my wife and I have saved for years and always thought we"d make our best deal by paying cash. I received a call from the business manager who told me that we're approved for a significant portion of the cost at a rate of 4.25%..and that the interest might be tax deductible. By financing, he said we would be in a better position to negotiate if and when we wished to trade in for another coach. I'm doing better than 4.25% on my investments and am looking for input from more seasoned RV veterans!

Any thoughts are appreciated
I'm pretty much in the same boat. We're choosing to finance (I'd check around for rates... Essex through Costco has 3.92% for up to 20 years) because, frankly, I'd rather spend the bank's money than mine. You can deduct the interest paid as a second home, and like you said if you're doing better than your interest rate on your money you're better off keeping your cash. If you change your mind you can always pay off the loan like Sarah said.

I see very little downside.
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Old 07-04-2015, 01:39 PM   #5
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Quote:
Originally Posted by MrBelvedere View Post
We're going to pick up our first RV next week. In our mid 50's, my wife and I have saved for years and always thought we"d make our best deal by paying cash. I received a call from the business manager who told me that we're approved for a significant portion of the cost at a rate of 4.25%..and that the interest might be tax deductible. By financing, he said we would be in a better position to negotiate if and when we wished to trade in for another coach. I'm doing better than 4.25% on my investments and am looking for input from more seasoned RV veterans!

Any thoughts are appreciated
Well Sir,
This is one of those things that common sense, gut feelings and MAYBE some financial advice all have to co-inside. I'm "real" old school here. My dad taught me a few zillion years ago, to "Get out of debt and stay out"!!

I have friends that have gone into debt, as in a second on their home, in order to "Write stuff off". Are you kidding me? Yeah sure, I'll go into debt, make payments, in order to get "a portion" of it back on taxes. No thanks.

Personally I don't care what kind of interest rate you'd get, YOU'RE STILL MAKING PAYMENTS! And, saying that you'll get a better deal on the coach when financing it, huh????? Just about every deal I've ever heard of, worked with, seen, and was told about, was ALWAYS improved when the seller heard the word "CASH"!!!!

Banks, loan establishments, Credit Unions and more, will always push for you to finance something 'cause they MAKE MONEY on the interest you pay.

First, if you pay cash, I'd bet my house you'll get the best deal possible. Second, YOU OWN IT, from day one! Third, if ANYTHING goes wrong or, you change your mind a day, a week, a month or 6 months down the road and, you find a better deal or, have to sell it for whatever reason, whatever money you get for it, IS YOURS, NOT THE BANKS. And, you won't have to deal with trying to get the title for it 'cause it's in some bank vault at the other end of the U.S.

And, while you may deplete some of your savings or, investments to purchase this item, in what you'll be saving in monthly payments, you can put those right back into your investments or the bank or, whatever.

As you can tell, I'm just not fond of going into or, being in debt or, owing anything on anything. I just feel way more in control. As for establishing a better credit line or, credit score, that was done decades ago. Other folks will have a different take on the "choice" of going into or, being in debt. It's a matter of preference when it comes to choice. If you have NO choice but, you're in a good enough financial position to AFFORD debt and, still live in whatever comfort level you're used to, then you do what you feels right. Good luck.
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Old 07-04-2015, 01:55 PM   #6
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This one situation that you might want to talk over with a financial counselor. Is the money available
or is it invested ? If invested is there a penalty for early withdrawal? Many people who pay cash all the time
have trouble getting financing if they all of a sudden need to finance something big.
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Old 07-04-2015, 02:16 PM   #7
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I would definitely look at the financing. I was a full timer and did finance mine. I used the banks money instead of mine. If you can earn a good return on your money and can get a cheap loan this is a good way to go. I invested my money and did not put it into a large depreciating asset.

Many people and organizations use other people's money and not their own when the rates are favorable. It is only common sense. You will still have much of your capital and not have it tied up in an rv.

As far getting a better deal from the dealer. The dealer doesn't care if the money comes from you or a bank. Once they have the cash they are out of the picture. Why would a dealer charge you less with your cash than a banks? It is silly to think otherwise.

Interest on the loan is tax deductible. This helps a little.

Good luck on whatever you do.
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Old 07-04-2015, 02:26 PM   #8
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First, you're often much better off going to your own financial institution for loans of this nature; don't just take what the dealer is offering at face value. If you do use the dealer's financing, be aware that he is getting "kick-backs" as SarahW mentioned earlier in the form of points (or fractions thereof) on the loan.

Contrary to popular opinion, dealers will negotiate rates, because the standard mantra in the dealer business is, "Never sacrifice the front end for the back end." It means two things: 1) They shouldn't break the price on the unit and try to make it up with points (because it could backfire on them), and 2) They should never sacrifice the sale of a unit because they didn't make any points on the loan. They have other ways of making up the difference; it's called "trunk money," which are just incentives from the manufacturers.

In other words: It never hurts to ask. In fact, it never hurts to push, and push hard. Believe me, they want the sale more than you want the rig, they just don't show it. They'll break before you do.

Additionally, the math says that if you're earning even a modest 5-6% on your savings (in an IRA or 401k, for example) and only paying around 4% or so for the loan, your money is still working for you to the tune of 1-2%. In the long run that's not much, but it's a helluva lot better than the money you'd be automatically losing to depreciation by dumping cash into a money pit like an RV.

That all said, we paid cash for ours, even though we have historically earned way more on our investments than the modest 5-6% I mentioned earlier. Then why use our own money to buy it? Simple: cash flow. Retiring meant a significant reduction of monthly income, and relieving ourselves of the burden of a monthly loan payment gave us enough financial flexibility to make it worth our while. Granted, the payments alone wouldn't bankrupt us, but piling an optional payment (like an RV loan) on top of all the mandatory payments we already make (like taxes) just wasn't comfortable for us.

I emphasize the for us part, because everyone's situation is unique. Take comfort in the fact that either way you go, you won't be making a huge mistake - you'd likely be just fine either way. But a quick look at your financials should give you a clue as to which way to lean.

Good luck!
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Old 07-04-2015, 03:08 PM   #9
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First, check with your own financial institution. A credit union often has lower rates than financing through a dealer. If you are getting a lower rate from the dealer, they are probably paying points and rolling that cost into the selling price (this is why you can sometimes get a better price by paying cash).

There is no definite answer as to whether you should finance or pay cash. If you are making more on your money than the interest rate you are paying and feel comfortable making the payment then finance. If you are not making more on your investments or you don't feel comfortable making payments, then pay cash.

The tax advantages is seldom worth the consideration when getting a loan.

Whether you have a loan or not is not going to make a difference in your trade-in or sales price. If you have a loan you will have to pay it off but the other party couldn't care less.
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Old 07-04-2015, 03:36 PM   #10
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You should always get preapproved at your local bank before shopping for an RV (just like buying a house or car) plus you know what your rates are and you won't fall for the finance mangers speel. They make BIG money on financing!!! They are not your buddy. We choose to pay cash for our MH because we are at a place where it is more advantageous for us to take the standard deduction rather than itemize expenses. We are very happy with our decision. Keep in mind, it is an individual decision; never one size fits all. And we have never had problems getting financing and have excellent credit. Good luck and enjoy the FUN RV Lifestyle!
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Old 07-04-2015, 03:39 PM   #11
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If you have the cash ..Why finance?.....Cash usually gets you a better deal, Easier to sell later, easier to trade in.. and when not in use and stored you can drop the Insurance..... And most of all your not in debt...

Whatever you decide.. Enjoy the fruit of your labor.. Stay safe
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Old 07-04-2015, 03:45 PM   #12
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Thanks Much..

I heed all of the comments and will check with my local banker on Monday for rates. Thanks!!
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Old 07-04-2015, 04:23 PM   #13
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Simple answer based on experience; Do not finance the cost of an RV.
I say this having been through this exercise myself recently for my rig. Please check with your investment financial planner (not bank/lending institution) and TAX accountant before you decide to finance.
Facts:
-You are only using the banks money if it is a zero % loan.
-"IF" based on your financial income situation and you meet the qualifying restrictions in the state you are living allows RV loan interest deductions, remember it is not a dollar for dollar tax liability reduction; the interest amount on your itemized tax filing is subtracted from your gross annual income which therefore may or may not be sufficient to place you in a lower tax bracket dictating your tax liability; even so you will not realize a full interest amount paid back to you dollar for dollar as a return on your tax filing.
-Usually by the time one is ready to sell or trade in, the RV value will be less than what the remaining loan balance unless a huge initial down payment is made. Driving off the lot with a new RV can lower the value 20%+.
-"IF" you plan on paying the loan off in a year because you plan on running into some fortune, then wait on the RV purchase until you get it, don't pay loan fees and interest you won't get back. Save your money and buy the next year model when you have the cash.
- If you do finance and take on a monthly payment you may reconsider when taking into account the addition to your budget, the monthly/annual costs for insurance, storage, maintenance, camp memberships, road breakdown services and for each trip fuel costs and travel expenses. Then of course with the income remaining go out and have fun with the RV!
Obviously I went though a very analytical process to end up with the best RV rig for us. I provide the above information with the sincerest hopes you achieve an informed and satisfying purchase outcome as well.
Happy Travels!
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Old 07-04-2015, 05:54 PM   #14
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4.25% interest in today's market is a lousy rate. Look for the RV that you can pay cash for. You can still go to the same places in a debt free RV as you can in a newer one that requires payments. When you are debt free, "YOU" are in the drivers seat and in control of your future. That said, I financed our last two motor homes, but only for 18-20 months. No monthly payments, but one in six months and the balance 12 months later. The last one was at 1.67% interest. An RV, in my opinion, is one of the worst investments to finance for longer than 3-5 years and then only if it does not lower your standard of living.
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