Buyer Beware!

Over the past year I had been looking into buying a small travel trailer (20'-23'). I wasn't looking for anything fancy, and just wanted something small enough that I could take it anywhere including the back country. I was perfectly fine with buying something used, but I didn't want junk. When I began my search I was astounded by the resale prices for used trailers! In some cases people were asking more for their trailers than you could buy the same trailer for new. As the trailers got bigger, the prices got even more crazy. It made absolutely no sense. Then I found out a dirty little secret about the RV industry which, according to an attorney I spoke with, could ensnare just about anyone (including even an attorney, he said). Consequently, I thought I'd share here on ATS, just as a warning.

The RV industry is not what it seems.

RV sales are at an all time high right now as more and more people want to 'get away' from the concrete jungles. But even this didn't explain the crazy pricing I was seeing on used RV's. So what was going on?

Turns out most people who buy an RV do so on credit, and virtually all of the RV companies have a financing arm. BUT...Most RV loans don't work the same way most other loans do. Take a car loan for example; if you finance a car for $25,000 and put $5,000 down you are financing $20,000. Each month you make payments, part of which is interest and part of which goes against the principle, right? So let's say you own the car for a year, and in that year you pay down the principle $2,000 (the rest was interest). You now owe $18,000 on the car (i.e. $25k purchase price - $5k down payment - $2k in principle payments = $18,000). If you decide to sell that car at the end of the first year, you'll need to pay the bank $18k to get out from under the note.

Well, that's NOT how most RV loans work! (and it's hidden in the small print of the contract with all sorts of extremely devious language). The way these loans work is like this (let's use the same numbers from above). The RV costs $25k. You put $5k down, leaving a finance amount of $20k. Let's say the interest rate is 10% APR, and you finance it for 5 years. I won't get into an amortization table here, so let's just say the interest over the period of the loan is $2,000 per year or $10,000 total over 5 years (again, I'm just keeping the math simple to illustrate a point, and yes, I get it the principle drops each year). So you financed $20k, and the example interest is $10k. You owe $30k, and you will pay $30k, not a dollar less. So in our example above, we paid $2,000 against the principle in the 1st year. At the end of that year we decide camping sucks and we want to sell our camper. The payoff amount of that camper is NOT $18,000 (like it was for our car), the payoff amount is $28,000! Fully $3,000 more than the selling price new, but our trailer is a year old.

Another way of saying all of this is, there is a huge early pay-out penalty which is the full amount of the interest for the full duration of the loan.

Now here's where it gets really shifty. If you read some of these contracts, and/or even talk to sales people, and ask them directly if you can early-out on the contract, they all say yes. If you ask if there's a penalty, they'll say no, it's all in the contract. Technically, it's not actually a "penalty" because it's all part of the original loan, and this is how they can get away with it. (this is what I asked my attorney friend). What these sales people are not telling you is, you can early-out, BUT... you're going to pay the full amount of the note at maturity. The language these contracts use to do this is so flowery it almost sounds like they're doing you a favor when you read it. Most would never recognize it for the onerous series of clauses it is.

I did some more research on this subject and I found out that many of the RV companies are actually losing money on RV sales, but they're making this money back up (and much more) on the financing side...which is why they have a finance arm / partner. Now, if you go look at new RV prices you will see two prices. One price, the discounted price will be if you use their financing. Then there's a higher price if you don't use their financing. So, in a nut shell, some of these companies are not actually in the RV business...they're in the shady financing business! RV's are just a sideline.

Are they all like this? No, probably not, but from what I found there are more who are than there are ones who are not. Most people don't have enough cash to fork out on a big RV purchase (luxury item), so financing is a lot more likely on an RV than even on a car. It's predatory, and it's wrong, but people are suckers sometimes and PT Barnum's old adage of a 'Sucker being born every minute' is in full force with RV's.

If you do buy an RV, talk to your bank or your credit union. They may have similar terms (and many do because RV's are a big loan risk), but at least they'll tell you up front. (and interest rates on RV's are not very favorable for the same reasons too).

In any case...BUYER BEWARE!

P.S. I hope this helps someone.

I probably should have footnoted the story with this...

The reason people were selling their used RV's for more than the original purchase price was because the only way they could get a clear Title for the RV was to pay the payoff amount (which was more than the RV cost new).

This leads to scammers (not pro's, just people who are badly upside down in an RV). They'll advertise a RV for sale at a decent price, but they don't have the title. It's a gamble. They're hoping they can come up with the difference between the selling price and what they owe...AFTER you give them your money. If they can't, you could possibly be out your money if you're dealing with someone who's less than honest.

How come our government allows loans like that to exist? I wonder if companies like Quicken loans use that technique on home mortgages?

a reply to: rickymouse

Well, like my attorney friend said, technically there's nothing illegal about them. Deceptive maybe, but not illegal. Where people get in trouble is they "assume" they're like any other loans they've taken out in the past and don't realize RV loans are different. That, and they get blinded by the 'coolness' of having a new RV and don't bother to read the fine print.

a reply to: Flyingclaydisk

That's obviously dishonest but when has a financial institution been obviously honest or honest?

Please bring this to the attention of Clark Howard.

Somehow, I don't picture you in a retiree trailer-more likely an army tent.

One of the other things I learned is most modern RV's have really crappy Quality Control in the manufacturing process, and manufacturers are really bad about honoring warranties. So, they're built shoddily and when the mfr. won't honor the warranty (they blame the dealer, and the dealer blames the mfr., etc.) you get the runaround. When this happens people just stop making payments...which is one of the reasons why RV loans are considered high risk to financial institutions.

There's not really any incentive to fix the loan problem when the quality of construction is so low, and the lifespan so short.

Plus, damage to RV's is very common. People back into things, or someone/some thing crashes into them. They are easily damaged, and there's very few places which repair RV's (they're not like cars). Additionally, repairs are very expensive and can easily approach the purchase price for even minor damage. When people can't afford it, they just throw their hands up and stop paying.

There's even damage caused by stuff like a roof leaking and the like.

When you add in the cost of the payments, the storage parking costs and all the other costs, if things go bad they go bad in a hurry and compound themselves. People just give up.

And this is why these companies can get away with some of these questionable lending practices. Think about it this way...you can always find someone to borrow you money. Some people will do it for nearly free, but the higher the risk the more likely you are to be dealing with some guy named Guido and his interest rate is a Louisville Slugger. In a loan environment the fundamental underpinning of interest rates is...risk.

a reply to: Justso

Not as young as I used to be anymore.

Now, when I get up in the morning, I have to make a visual inspection to make sure all my various parts are pointed in the correct direction and working in unison. Otherwise bad things happen.

The OP is a long read, I know.

Nobody likes "long" reads anymore. Just a 40 word limit, a tweet, or whatever, please.

Sorry.

Note to self...40 words or less.

ETA - Errr....280 characters

a reply to: Flyingclaydisk
Thanks for the heads up on this, I had no idea. My family has talked about getting a small RV for beach camping. Good to know. Thanks again

Rv's are built as cheap as possible.
I spent a long time in the industry.

But on the other hand, talk to a banker you can trust. Actually I would recommend a credit union over a bank. Take the paperwork to them and see what they say.

Well there are two kinds of RV purchasers as well. The ones that buy an RV instead of a pontoon boat for “the weekends” and the people (mostly retired) that are buying to snow bird their golden years.

The rare ones are the “Tiny House” movement which is where I would fit in to be honest. The ones that plan to live in one year round in a year round RV park.

Doesn’t matter if you are buying a motor coach or a travel trailer when it comes to RVing. What does matter is to be able to pay cash either 100% or 80% and finance the balance. And your best bet is either a bank or credit union. And be upfront about which category you are. It could help but at least not hurt.

One other thing about buying new. Research and don’t impulse buy the same day you see it. They are not going to sell out unless they are a small dealership. And remember that just like a boat, you don’t stop with just the big purchase. There is all kinds of needed extras. And an 8’x10’ garage of a toy hauler costs about $10,000 but if you want a golf cart for the campground to shop and do laundry...you see how the RV purchase quickly becomes a boat purchase.

Hmm, I wonder if that's everywhere and if so how they would skirt around some of the laws with regards to other loans(automotive for example).

IIRC in my state(and I'd assume most) it is actually unlawful to have a penalty for early pay off on auto's.

The reason they have those laws are because of exactly what you stated, it's a scam otherwise.

a reply to: MisterSpock

I went to college in 1989 and my loan payments were set up with interest already included.
Paying off the loan early or going full term was the same cost.

a reply to: MisterSpock

IIRC in my state(and I'd assume most) it is actually unlawful to have a penalty for early pay off on auto's.

Here's the trick...it's not an "auto" loan.

It's an RV loan, hence the difference!

a reply to: Flyingclaydisk
How about if you buy a second hand bus and fit it out yourself?

Is this jut simple interest, versus compound interest?
Or am I mistaken?

a reply to: spacedoubt

I should have just thrown out an Interest value, and not an APR (percentage rate). Don't get wrapped around the axle on the numbers!

Just look at the point.

The point is....calculate the total amount of interest over the life of the loan (whatever it is)...forget the math of how it's calculated! Then, add the interest to the principle value...and this is what you owe at the end of the day...early pay out, or not. In other words, the day you sign the contract, you owe this much, no matter when you pay it off.

Do you see now????

a reply to: spacedoubt

Yeah, sure, we can get out amortization tables (as I noted earler). We can calculate exactly how much principle is paid down in a year, and then apply the remaining balance over the APR on a pro-rata basis...and the math would quickly complicate to confuse the basic point.

I was trying to keep the point simple, to illustrate the deception.

If you really want to get into interest and amortization tables...okay...let's do it. The net result will be the same as my original point.

Make sense now?

a reply to: Flyingclaydisk
no.
was just asking if you are comparing simple and compound interest

simple interest...you pay a straight up fee to borrow the money.
borrow 1k at 7 percent..you pay 70 dollars. even if you pay off 10 minutes later.

a reply to: spacedoubt

It's actually kind of both.

It's compound interest in that it gets recalculated (again) at the end of a theoretical time period. It's simple interest in that it gets calculated (all those iterations) up front and becomes the executed contract value.