Help me make sense of financing

[Tdavid]

Hi,

I'm embarrassed to admit that I'm confused about best way to structure my financing deal, asking for the wisdom of who has done it before here (I am sure many have).

I paid cash for my current rig in 2016, around $24k, owe nothing on it.

Private sale retail, when spring comes, I think I can get around $17k for it.

I have a $60k fifth wheel on order, due in Feb.

My dealer is offering $13.5k trade in value.

If I am doing my research correctly, it makes a lot more sense to do the following:

Finance the total amount of the new fifth wheel, sell my old rig privately, and then apply the proceeds towards the new rig's loan as a principal reduction.

Here is what I am seeing:

I plan on financing for 180 months, to keep cash flow as attractive as possible. However, I plan on only keeping the rig for maybe 48 months.

Using the $17k as a principal reduction on the financed amount allows me to jump ahead on the amortization schedule, and I will have more equity at 48 months vs allowing the trade-in to reduce my financed amount, or using the $17k as a downpayment (should I sell my current rig before the new one comes in).

Using the $17k as a principal reduction also means I have paid less interest at 48 months vs the other two scenarios.

Bottom line, if I am doing my research correctly: don't use the cash from my current rig's equity as a downpayment (or trade-in). Sell it privately and use the proceeds as a principal reduction on the new rig's loan.

I plan on using GoodSam, and they do not have a prepayment penalty.

I realize that I can reduce my tax burden on the new rig by trading in my old one, but the savings is only about $800.

Risk here is that I don't sell my current rig for a while, but even if I fire sale it at $13.5k, the trade in amount, I am still better off as a principal reduction on new one?

Am I missing anything?

Thanks,

Dave

[mich800]

time2roll wrote:

Jayco-noslide wrote:
1 poster stated "no financial person will ever recommend purchasing something you can't afford" I disagree. It depends on what "afford" means. To me it doesn't mean you can make the payments. it means that I can pay cash for it. In other words, pay for it the day I buy it and not delay paying for many years through monthly payments. Financial people not only state that it's OK to finance but actually a good thing. Wrong. Homes excluded. It was Dave Ramsey that got me started thinking about this.

+1

I am OK making payments however there are plenty of predatory (and regular) lenders that will make loans the borrower cannot afford. Very few lenders do any digging to determine affordability. Maybe a home lender does some. Mostly people self qualify themselves for the loan and the lender does a quick scan for monster red flags.

Dave is a good guy with good advice.

If you think the person approving your loan is a financial adviser you are mistaken. There is nothing wrong with the Ramsey approach. But this is also an ultra conservative approach that will mute your potential investment gains.

[time2roll]

Jayco-noslide wrote:
1 poster stated "no financial person will ever recommend purchasing something you can't afford" I disagree. It depends on what "afford" means. To me it doesn't mean you can make the payments. it means that I can pay cash for it. In other words, pay for it the day I buy it and not delay paying for many years through monthly payments. Financial people not only state that it's OK to finance but actually a good thing. Wrong. Homes excluded. It was Dave Ramsey that got me started thinking about this.

+1

I am OK making payments however there are plenty of predatory (and regular) lenders that will make loans the borrower cannot afford. Very few lenders do any digging to determine affordability. Maybe a home lender does some. Mostly people self qualify themselves for the loan and the lender does a quick scan for monster red flags.

Dave is a good guy with good advice.

[TenOC]

Can you invest the cash at an interest rate greater than the finance rate when you include all finance charges?


For example, if the finance rate is 3% APR and you can invest at 5% APR -- then finance. You are making n 2% interest net.

[Jayco-noslide]

1 poster stated "no financial person will ever recommend purchasing something you can't afford" I disagree. It depends on what "afford" means. To me it doesn't mean you can make the payments. it means that I can pay cash for it. In other words, pay for it the day I buy it and not delay paying for many years through monthly payments. Financial people not only state that it's OK to finance but actually a good thing. Wrong. Homes excluded. It was Dave Ramsey that got me started thinking about this.

[DSDP_Don]

This is making my head spin.....I don't think you discussed a down payment on the new coach. This is pretty simple stuff. Sell the old RV private party, unless you don't want the hassle, use the sale as the down payment. Finance for as money months as they will allow and pay as much additional money toward the pay off as you can each month.

With the above, your payments are kept low in case there is a financial emergency, yet you can pay down the principal as you can.

Lastly, shop for a loan. Good Sam is the LAST place I would look. A dealer always has several lenders available to them and they use the best lenders for those with the highest credit. Out west, Bank of America and Bank of the West are big RV lenders and offer competitive rates.

[riven1950]

Gritdog wrote:
IF it’s a simple interest loan, so flat out nothing.
Do they do simple interest in vehicles now? I’ve never seen it. Last few loans I took out, from the credit union, albeit over 5 years ago now we’re not simple interest. They were amortized. Only simple interest loans I’ve gotten were corporate deals worked out to finance investments.
If I’m wrong and now car/rv loans are simple interest then I stand corrected.

I think most are simple interest now. Only place I can imagine still getting an " add on interest type loan " would be at a "finance Company " or many car lot doing in house financing.

But I would ALWAYS ask before agreeing to a loan.

[riven1950]

bucky wrote:
Here is a suggestion that has worked for us when we had to finance. It will only work if the equity in your house is more than the RV price or close.
Take a fee free or low fee home equity loan as an interest only payment. The rates are significantly lower that way. When you sell your existing RV pay those $ towards the loan. Every time you get an extra 50 cents pay that towards the loan. Your payment amount goes down with each extra "deposit" you make. We haven't had to do that in a few years, your results may vary.

Not a bad idea if you are are stable financially and know how to manage you money. I think a home equity line is about 2.99% apr now with no or very little fees. Not a good idea for someone in a lot of debt or not good with their money management.

[Grit_dog]

troubledwaters wrote:

Grit dog wrote:
And putting the money towards principle doesn't reduce the interest you pay unless you see out the loan. Or refinance to knock down the beginning balance.

Flat Out Wrong! Interest is always computed on the current outstanding balance on the date the payment is due. The outstanding balance may be more or less than what the amortization schedule says it is.

IF it’s a simple interest loan, so flat out nothing.
Do they do simple interest in vehicles now? I’ve never seen it. Last few loans I took out, from the credit union, albeit over 5 years ago now we’re not simple interest. They were amortized. Only simple interest loans I’ve gotten were corporate deals worked out to finance investments.
If I’m wrong and now car/rv loans are simple interest then I stand corrected.

[Ductape]

Nothing wrong with using a house for collateral when you have the money elsewhere to clear the mortgage if or when you want. It's all about the cost of money and lost opportunity cost.

Cash buyers often don't compute the loss of potential earnings from converting appreciating assets to a depreciating asset.

[time2roll]

^^^ +1

Let them take the RV not the house.

[Arcamper]

bucky wrote:
Here is a suggestion that has worked for us when we had to finance. It will only work if the equity in your house is more than the RV price or close.
Take a fee free or low fee home equity loan as an interest only payment. The rates are significantly lower that way. When you sell your existing RV pay those $ towards the loan. Every time you get an extra 50 cents pay that towards the loan. Your payment amount goes down with each extra "deposit" you make. We haven't had to do that in a few years, your results may vary.

Maybe it's just me but I would never put my home up as collateral against anything much less a toy. Things happen in life that can change the best of plans.

[bucky]

Here is a suggestion that has worked for us when we had to finance. It will only work if the equity in your house is more than the RV price or close.
Take a fee free or low fee home equity loan as an interest only payment. The rates are significantly lower that way. When you sell your existing RV pay those $ towards the loan. Every time you get an extra 50 cents pay that towards the loan. Your payment amount goes down with each extra "deposit" you make. We haven't had to do that in a few years, your results may vary.

[Tdavid]

Ralph Cramden wrote:

Don't assume the 3/4 point rate drop at 50K as shown on the charts at the Good Sam finance site to be golden. Read the "important disclaimers". When you submit the app, they run the credit, and have all the other pertinent info that's when they will tell you the rate they will offer. It's seldom as rosy as they advertise.

FYI, I have always been able to get a better rate elsewhere than whoever it is that underwrites Good Sam financing. That held true 4 times carrying a score near 800.

Interesting. What lenders have you used?

[troubledwaters]

Grit dog wrote:
And putting the money towards principle doesn't reduce the interest you pay unless you see out the loan. Or refinance to knock down the beginning balance.

Flat Out Wrong! Interest is always computed on the current outstanding balance on the date the payment is due. The outstanding balance may be more or less than what the amortization schedule says it is.