How is interest applied on an RV loan?

To your original question: This is the way it was explained to me by my lender.
I double the payment every month to pay it down quicker.

You have a billing period, ie monthly payment, that can vary from 30 to 35 days (they use the date it posts, not the date you pay it). That is how they determine the billing period, and then they use division to give you a daily interest amount, using whatever rate you are assigned and the loan balance. I'll use your 15k number as the loan amount. In this hypothetical, the rate doesn't matter.

So lets say the daily rate is five dollars for month l, and that month is 30 days. So out of a 200 dollar payment, 150 goes to interest and 50 goes to principle. At month 2 you will owe 14,950. Because you lowered the principle, the daily rate is now 4.80, for example. (Not using exact nbrs; just trying to demonstrate how it works). So month 2 is 4.80 x 31. So now the interest is 148.80, and the principle is 51.20.
After month 2, the original amount you owe is again reduced, but only slightly.
Month 3 the daily rate might come out to 4.75. You can do the math.

There is where making extra payments comes in. Any money over and above the monthly interest amount is applied to principle. As the principle goes down, so does the daily rate.

This was my understanding of what I was told anyway. Sees to be correct, as I go online and look at the amortization statement and see the numbers change each billing period.

Hope I explained it right and that it helps.

Rick Jay wrote:
95jersey,

As others have said, the majority of RV loans will amortize just like a home mortgage. No difference. I can tell you what I did to avoid the "upside down" loan problem.

First, we bought a new unit and purchased it at a very competitive price. I had bids from 3 dealers, and 2 of them couldn't come within $10k of the third dealer. Now, this was an "online" dealer, so there were some "risks" with that purchase, but all ended well.

Anyway, I put down 20% of the purchase price in cash and paid for the first year sales tax & excise tax in cash as well. Otherwise I would've put almost 30% down. I checked NADA value each year of the loan and our rig was generally worth somewhere a bit above low NADA value, so IF we were upside down, it was minimal. Since the rig was kept in good shape, I believe we could've sold it at anytime and paid off the balance.

We also financed over a period of 20 years with a plan to pay it off in 10. The formula I used to pay it off is to double the principal payment on every payment. Doing so will cut the loan term in half, so the 20 year loan was payed off in 10 years. However, early in the loan, the largest percentage of the loan payment was interest, so doubling the principal early on in the load didn't hurt too much. Every loan payment, though, was a bit more than the last. By the end of the loan, our monthly payments were almost double the original payment because the majority of each payment was principal (which we doubled), with minimal interest added. However, 9 years later into the loan, my take home pay was higher and took the sting out of it. Plus, excise tax and insurance generally dropped every year as well.

It's a bit complicated and you need a spreadsheet to make each loan payment calculation, but it works quite well.

My other concern with a loan of this size was, just in case money got tight, I could always resort back to the regular 20-year pay-off schedule with it's relatively small monthly payment. So, that's my fall-back plan. Which wasn't needed.

If you think you're going to be selling it in 5 years, unless you buy a rig which has already taken a big depreciation hit, you'll most likely be upside down in a loan unless you do something proactive to get it paid off early. Fortunately, you can do your homework ahead of time and see what you need to pay to keep from becoming upside down.

There are those on here who will tell you to NEVER finance an RV...depreciating asset, and all that jazz. Nice for people who can do that, but that wouldn't have worked for us. Plus, life is too short. If you can swing it without financially jeopardizing your family, go for it!

Good Luck,

~Rick

This is great information. To be precise about my scenario, the RV is a 2017 Jayco 273 toy hauler. I think new (2018) they are $34k. The price after negotiation is $21k. I think it is a good price and a quality RV. I am trading in my current paid off RV for $6k (which I bought for $7500 3 years ago), So I will finance approximately $15k + tax. I am hoping in 5 years it will still be worth $12-$15k and I will have paid off 40% of the loan (10 year), and be above board? Is that reasonable thinking?

Ductape wrote:

95jersey wrote:
Hmmm. While I do understand simple interest, there is a major difference on how a mortage works, compared to a simple interest curve. Under a 30 year mortgage, I would be paying something like 80% interest for say the 1st 10 years, meaning I paid little to no primary. While it is what it is on a house and we have little choice as we NEED a home loan. I certainly don't want to pay mostly interest the 1st 5 years of an RV loan like a house and still owe the majority of the principle.

I would probably sell the RV in 5 years or less and don't want to be in a position where it is worth $10k and I owe $15k.

It all works exactly the same. The only difference is the length of the term. If you finance a car for 3 decades it'll soak you for interest just like the mortgage. Long term loans are a gift to the lender, mortgage or otherwise.

Pay extra, pay early, pay it off. *unless you're paying with working capital that earns even more.

With the caveat that a RV is a depreciating asset unlike (generally) a home. So if you make a bad deal on the RV, have a long amortization, low down payment or and combination of the above you can get upside down on a RV loan over the short term.

95jersey,

As others have said, the majority of RV loans will amortize just like a home mortgage. No difference. I can tell you what I did to avoid the "upside down" loan problem.

First, we bought a new unit and purchased it at a very competitive price. I had bids from 3 dealers, and 2 of them couldn't come within $10k of the third dealer. Now, this was an "online" dealer, so there were some "risks" with that purchase, but all ended well.

Anyway, I put down 20% of the purchase price in cash and paid for the first year sales tax & excise tax in cash as well. Otherwise I would've put almost 30% down. I checked NADA value each year of the loan and our rig was generally worth somewhere a bit above low NADA value, so IF we were upside down, it was minimal. Since the rig was kept in good shape, I believe we could've sold it at anytime and paid off the balance.

We also financed over a period of 20 years with a plan to pay it off in 10. The formula I used to pay it off is to double the principal payment on every payment. Doing so will cut the loan term in half, so the 20 year loan was payed off in 10 years. However, early in the loan, the largest percentage of the loan payment was interest, so doubling the principal early on in the load didn't hurt too much. Every loan payment, though, was a bit more than the last. By the end of the loan, our monthly payments were almost double the original payment because the majority of each payment was principal (which we doubled), with minimal interest added. However, 9 years later into the loan, my take home pay was higher and took the sting out of it. Plus, excise tax and insurance generally dropped every year as well.

It's a bit complicated and you need a spreadsheet to make each loan payment calculation, but it works quite well.

My other concern with a loan of this size was, just in case money got tight, I could always resort back to the regular 20-year pay-off schedule with it's relatively small monthly payment. So, that's my fall-back plan. Which wasn't needed.

If you think you're going to be selling it in 5 years, unless you buy a rig which has already taken a big depreciation hit, you'll most likely be upside down in a loan unless you do something proactive to get it paid off early. Fortunately, you can do your homework ahead of time and see what you need to pay to keep from becoming upside down.

There are those on here who will tell you to NEVER finance an RV...depreciating asset, and all that jazz. Nice for people who can do that, but that wouldn't have worked for us. Plus, life is too short. If you can swing it without financially jeopardizing your family, go for it!

Good Luck,

~Rick

95jersey wrote:


I would probably sell the RV in 5 years or less and don't want to be in a position where it is worth $10k and I owe $15k.

many folks are upside down on their loan exactly like that.
bumpy

How would anyone know without reading the agreement offered to you?

95jersey wrote:
Hmmm. While I do understand simple interest, there is a major difference on how a mortage works, compared to a simple interest curve. Under a 30 year mortgage, I would be paying something like 80% interest for say the 1st 10 years, meaning I paid little to no primary. While it is what it is on a house and we have little choice as we NEED a home loan. I certainly don't want to pay mostly interest the 1st 5 years of an RV loan like a house and still owe the majority of the principle.

I would probably sell the RV in 5 years or less and don't want to be in a position where it is worth $10k and I owe $15k.

It all works exactly the same. The only difference is the length of the term. If you finance a car for 3 decades it'll soak you for interest just like the mortgage. Long term loans are a gift to the lender, mortgage or otherwise.

Pay extra, pay early, pay it off. *unless you're paying with working capital that earns even more.

Generally the loan will amortize same as a home loan or auto loan. Every legit lender does a loan like this. Now if you go to some shark, pawn shop, or check cashing store to borrow money you could face about anything and it will be costly.

A google search should turn up an amortization worksheet. Put in the amount, term and interest rate and you should get the full schedule.

5 years into a 10 year loan you will still owe about 60%. You need a loan maybe same as you expect to own the RV or maybe another 2 years more at the most.

Hmmm. While I do understand simple interest, there is a major difference on how a mortage works, compared to a simple interest curve. Under a 30 year mortgage, I would be paying something like 80% interest for say the 1st 10 years, meaning I paid little to no primary. While it is what it is on a house and we have little choice as we NEED a home loan. I certainly don't want to pay mostly interest the 1st 5 years of an RV loan like a house and still owe the majority of the principle.

I would probably sell the RV in 5 years or less and don't want to be in a position where it is worth $10k and I owe $15k.

That sounds like a question to ask your lender.

Generally speaking, though, if the interest rate and total payment amounts are fixed, there has to be more interest paid with the first loan payments than the last ones. The interest is, after all, a percentage of the current outstanding balance, which is being paid down over time...so the interest paid per installment also goes down over time.