Cash Vs. Finance

[DallasSteve]

I'm planning to buy a new RV in March. Yes, I know they depreciate like crazy, but I've window shopped the used market and I don't see any that's what I want at a reasonable price and I don't want to get into the used RV inspection dance, either. I have the cash, but my plan has been to finance initially and then pay off the loan in a month or two. Interest would not be tax deductible for me and I don't think I'll get a 29% return in the market again next year. So I don't want to keep the loan.

The reason I want to get a loan to start with, is because I like the idea that a bank or some other business has "skin in the game" with me. What I mean by that is "How do I know if I give the dealer my cash for the RV they will actually deliver the RV? I don't have much trust for any RV dealer and I don't know what paperwork to look for. A company in the business of putting their money out to finance these purchases almost certainly knows what to look for.

So what are your opinions/suggestions about a plan like this? I know I will loose a little money by doing a loan, but I consider that to be like title insurance if I was buying a home. It's something I'm willing to pay for. And as a related question, What are typical prepayment penalties or terms on RV loans?

[wing_zealot]

bid_time wrote:

Oasisbob wrote:
Always amazes me how many people will finance an RV...

It amazes me how many pay cash!

Over the last 11 years (since the end of 2007 which includes the market crash in 2008) my investments have earned a 6.4% average annualized return. This year it was over 20%. I have several loans, one at around 4.5%, one at 3.21%, and one at 2.94%. I can pay them off anytime I want to; but why would I. I'm making more keeping my money invested.

Let me put it to you simply. I took out a $25,000.00 loan in the end of April at 3.21% for 60 months. I left that $25,000.00 invested in my moderate risk balanced index fund. I take the payment $451.55 out of that fund account every month, first payment made the end of May, the balance remains invested. As of Jan 1 I have a balance of $24,307.89 in that account. The loan payoff amount is $21,893.62

Yes it was a good year. But even if it was an average market (7% per year) I would still be $900.00 ahead at this point.

I still have the money to pay off the loan any day I want; plus I get to keep the difference between the payoff amount and the current balance in the account. (minus taxes) which would amount to about $775.00 today.

Now obviously there is some risk involve. If the markets are in a downtrend, maybe it’s not a good time to capitalize your own loan. If the markets are stable and remain stable, in the end you reap a substantial benefit. Anytime the market slides such that the balance in the account is in danger of not covering the payoff amount, I can pay off the loan free and clear.

Your biggest risks are the first few months. If the fund dives and loses 5% a month for the first 3 months you would be looking at a $3500.00 loss. If the markets perform normally, you will start out ahead and be able to sustain blips as the market moves up and down in its normal course.

×2

[andydallas]

about 20 years ago I was buying a Ford Diesel pickup, I made the best deal I could, and ask how I could get a lower price. He said "finance it and don't pay it off form 3 months and I'll make a kick back and split it with you. I did exactly that. I can't remember how much I made, but I think it was about $400-$500 for doing nothing but making 3 payments.

[Beaker]

When I bought my last vehicle I had to make 3 payments or the bank would remove the loan from the dealers portfolio.

Last car I bought F&I guy told me I had to wait 3 months to pay it off or prepayment penalty. Right on contract, it stated no prepayment penalty(may be state law.) Paid it off 1st month. Found out later F%I guy does not get commission if paid off before 3 months.

[ksg5000]

pitch wrote:
I would go with the loan. Rv dealers are like car dealers in that they receive a "kickback" dependent on the value of loans written.
You may be able to save a couple hundred taking the loan over cash.
I am not familiar with a prepayment penalty as they are illegal in my state of residence.
When I bought my last vehicle I had to make 3 payments or the bank would remove the loan from the dealers portfolio.

You didn't mention the amt of the loan or interest rate. A 40K loan at 5% over 3 months would generate $500 interest payments. Best way to buy an RV is to be a cash buyer who is a good negotiator.

[ScottG]

Jayco-noslide wrote:
We went debt free years ago and it's a great feeling and the financial benefit seems to snowball. No interest, no monthlys, more to invest or spend. I really don't see the benefit of borrowing even short term.

This is really true. While I've had to go without some things, the benefit of not paying out all that money to interest becomes more and more apparent. You suddenty find that you dont have to make payments and that you have way more cash on hand.

[Jayco-noslide]

We went debt free years ago and it's a great feeling and the financial benefit seems to snowball. No interest, no monthlys, more to invest or spend. I really don't see the benefit of borrowing even short term.

[pitch]

I would go with the loan. Rv dealers are like car dealers in that they receive a "kickback" dependent on the value of loans written.
You may be able to save a couple hundred taking the loan over cash.
I am not familiar with a prepayment penalty as they are illegal in my state of residence.
When I bought my last vehicle I had to make 3 payments or the bank would remove the loan from the dealers portfolio.

[opnspaces]

I would go the cash route, it's how I bought my trailer.

It really will go the same way you purchased your last RV's except you will own it when you drive away.

Negotiate the out the door selling price. Let them know during negations that you will bring a cashiers check from the bank on the day of delivery.

Let them know you will sign the final paperwork only after an acceptable Pre-Delivery Inspection (PDI). Don't sign anything additional than a deposit agreement.

If necessary put a minimal deposit down.

Do the PDI with the dealer.

Make them fix anything BEFORE YOU SIGN anything else. It's amazing how fast they can get things repaired when the money is still in your pocket.

Once satisfied do the paperwork. Verify the purchase price on the documentation is correct before signing anything.

Hand them the check.

Shake their hand.

Take the key and drive away.

[ksg5000]

Been buying cars/rv's with cash for 40 years - never had a problem. When you leave the dealer you have ample paperwork proving the vehicle is yours - and more importantly you leave with the rig. The State issues the title and how long depends on the State.

[spoon059]

mich800 wrote:
In what scenario would you hand over $30-40k or something other than a deposit without driving off the lot concurrently to the transaction?

I agree, this sounds like a solution without a problem. When I bought my custom ordered trailer, I paid a $500 refundable deposit. When the trailer arrived, we did the PDI walk through and gave them a check for the balance. We used our HELOC at about 3% to purchase the RV and paid it off in 3 years with no penalties.

[Walaby]

Definitely overthinking and overreacting.

When you took out a loan for your current RV, did you sign the loan paperwork before you did inspection and took possession? If so, big mistake. if not, then same process.

Same basic process cash or financing. Just give them the check at the appropriate time and avoid signing all the papers

I don't understand the drama.

Mike

[time2roll]

DallasSteve wrote:
And as a related question, What are typical prepayment penalties or terms on RV loans?

Often there is a minimum holding period of 2 to 6 months then no penalty. Verify before you sign.

[Dick_B]

Are you sure you can get a loan from the bank? What would be the collateral?

[bid_time]

Oasisbob wrote:
Always amazes me how many people will finance an RV...

It amazes me how many pay cash!

Over the last 11 years (since the end of 2007 which includes the market crash in 2008) my investments have earned a 6.4% average annualized return. This year it was over 20%. I have several loans, one at around 4.5%, one at 3.21%, and one at 2.94%. I can pay them off anytime I want to; but why would I. I'm making more keeping my money invested.

Let me put it to you simply. I took out a $25,000.00 loan in the end of April at 3.21% for 60 months. I left that $25,000.00 invested in my moderate risk balanced index fund. I take the payment $451.55 out of that fund account every month, first payment made the end of May, the balance remains invested. As of Jan 1 I have a balance of $24,307.89 in that account. The loan payoff amount is $21,893.62

Yes it was a good year. But even if it was an average market (7% per year) I would still be $900.00 ahead at this point.

I still have the money to pay off the loan any day I want; plus I get to keep the difference between the payoff amount and the current balance in the account. (minus taxes) which would amount to about $775.00 today.

Now obviously there is some risk involve. If the markets are in a downtrend, maybe it’s not a good time to capitalize your own loan. If the markets are stable and remain stable, in the end you reap a substantial benefit. Anytime the market slides such that the balance in the account is in danger of not covering the payoff amount, I can pay off the loan free and clear.

Your biggest risks are the first few months. If the fund dives and loses 5% a month for the first 3 months you would be looking at a $3500.00 loss. If the markets perform normally, you will start out ahead and be able to sustain blips as the market moves up and down in its normal course.

[wa8yxm]

Been a long time since I took that class and times have changed but....

A lot depends on the interest rate. v/s infation rate v/s return on investment ratre.

money in the bank back when I took the class paid 5%. and inflation was about 7 so it was a loosing deal your money SHRANK. today the interest rate paid for savings is closer to 0.5 percent (1/2 or less) and inflation higher.

Back then loans made sense

Today loans.. well the interest rate is all over the map..

One thing I will recommend AGAINST is the 30 year loan. Camping world likes to do the 30 year loan.. Most RV's don't last that long. So go with a shorter term if you get a loan. .

Beyond that I have not done the math in the last decade and as I said times change.