Should you finance an RV?

For people looking to enjoy the road several months out of the year, an RV is a logical choice. But should you spend savings on an RV or finance your purchase? It’s best to look at all your options before making a decision.

For many people, financing is the best option. Local RV dealerships can help, but also check with your bank, credit union or online to get comparative rates. The reason financing is so attractive is that many RVs qualify for the same tax benefits as a second home mortgage. You’ll be able to write off interest and taxes if you have enough deductions to itemize.

To qualify for as for the income tax benefits, the RV has to be used as security for the loan. It also has to have basic living accommodations like as a sleeping area, bathroom and cooking facilities.

Dedicated RV lenders will determine financial terms based on your credit, and the age, type and cost of the RV. Down payments are usually about 10 percent of the total purchase price.

RVs typically have good resale value, so payments are often low because the terms are longer than other vehicles. Terms on RV loans can be 10-20 years, which allows you to make lower payments and enjoy years of tax savings.

Special financing is required to buy an RV, although you could get a lower-rate home equity loan. A second mortgage is not an option if you want to keep the tax advantage from your RV purchase. That’s because a home equity loan has to be used to purchase or improve a residence or to pay for the remaining balance on a mortgage, like a balloon, or a home improvement. Even if you don’t mind sacrificing the tax benefits, if your RV costs more than $100,000 a home equity loan will limit the amount of interest that is deductible because it reduces equity. If you want to leave your children an inheritance, a reverse mortgage may not be for you.