Upside Down

What to do if you are upside down on your RV loan? This question came up on one of the iRV2 forums and it spawned a lengthy thread.

Short answer?

Don’t borrow in the first place.

We own our coach free and clear. If you buy a coach or an RV outright, then you will lose money. The more expensive the RV, the more expensive the loss. Depreciation is very steep for the first several years and moderates somewhat over the life of the coach. At the end of the day, an RV is a depreciating asset. Period.

Financing an expensive machine over 15 – 20 years just to make a monthly payment? Insane. I have yet to find an owner that held their coach for 20 years. There might be a few out there but most people will change out their coach long before the financing period ends.

And that means, when it comes time to sell, you will be upside down on the loan, as most loans are front-end loaded from an interest rate perspective.

One couple, just down from our site, owns a beautiful, gently used Dutch Star, only a few years young. They bought it privately from a U.S. citizen. When it came time to close the deal, the seller announced that he had a lien on the coach that would need to be cleared before he could transfer the ownership. In other words, the buyer would not have title to the coach. No registration. No insurance. Liens make life very complicated when trying to sell a coach. The seller had to make legal arrangements to satisfy the buyer’s legitimate risk concerns over how the loan would be cleared to transfer the ownership without a lien.

Being upside down is far more common within the RV community. Although owners will not tell you outright that they borrowed money to buy their coach, the RVIA does track this information.

These numbers are for the United States. There were 500,000 units shipped in 2017. That includes everything from small camper trailers to Class A motorhomes. The 500,000 units shipped represented roughly $18 billion in retail sales of which $8.4 billion of loans were made to 200,000 buyers.

The average selling price was $36,000 and the average financing amount was $42,000 so the higher the cost of the unit, the larger the loan.

Average household income for RV owning households is $62,000 and they spend an average of four weeks using their RV each year. It doesn’t seem wise to take on a large debt for something that you might use for only a few weeks each year.

I could not draw any insights into Class A motorhome debt specifically although the discussions I have had with many motorhome owners is telling. I’ve met many owners who had bought their coach on impulse and, given the data, almost half of them went into debt to buy on impulse. If they sell on impulse, which many do, they lock in the loss which makes the decision to borrow even worse.

Buy what you can afford.

Do not borrow to buy a depreciating asset.