Should I Take Out A Loan To Fund My Van’s Build?
I see this question a lot and so many people have varying answers on this. However, as I have been doing research on this exact thing for a year before I finally found what worked best for me.
So I googled “what kind of loan do I need for an RV” because let’s face it, whether it is a trailer/camper (including pop ups and 5th wheels) a skoolie or a van, it all falls under the term “recreational vehicle” and therefore it doesn’t qualify for the standard car or home loan. Professor Google, as I call it, educated me with this:
“RV loans can be unsecured personal loans that you get from online lenders, or secured vehicle loans from banks and credit unions. Rates and terms vary by lender, and the rate you receive will depend on your credit score and income, the age of the vehicle, and if the loan is secured by the RV, or unsecured.”
Let’s break this down and keep in mind, I’m not an expert, I’ve just been researching and reading up on this for about 5 years. I’ve purchased several vehicles and lived in a camper for a year before starting down this new journey. I’m intermediate at best ok?
Starting with the smallest bite – secured vs unsecured – what does that mean? A secured loan means you’re putting down some form of collateral. Typically, the vehicle itself is the collateral. If you don’t pay the loan, they take the car. In the case of a secured loan, something else is on the line as well. An unsecured loan just means the only thing that is collateral is the vehicle. The difference affects your interest rate, borrowing limit and repayment terms.
Next up, let’s tackle the “credit score, income and age of the vehicle” bit. Age of the vehicle is going to come into play for both budget and loan qualifying. I will tell you right off the bat, if the vehicle is 10 years or older, the answer will be no. Doesn’t matter if it is in pristine condition, they see the age and automatically disqualify it. I can’t tell you how they came to that conclusion but my guess has to do with maintenance costs and past experience. However, that doesn’t mean you still shouldn’t go for it, it will just be that much harder. It may mean you need a bigger down payment or something else.
Your income to debt ratio will be something they look at, a good rule of thumb is 28/36. Meaning your total monthly debt is at or below 36% of your income, and housing costs are at or below 28% of your income. Nerdwallet has a DTI Calculator that means you don’t have to do math (I suck at it so of course I have this bookmarked – I told you, I’ve been at this for awhile).
Now your credit score, you’ll want this to be as high as possible but here is the rub. You’ve got to use credit in order to have good credit. But you can’t use too much of it because it’ll throw off your debt to income ratio. It’s a very slippery slope. You should make sure that your credit is in good shape before you even bother talking to anyone about financing anything. If you know your credit isn’t in the best shape then you need to put that money you are saving for van life towards paying off your credit cards. It may not be what you want to hear, but it’s what you need to hear. If your credit is already in good shape then awesome. You’re ahead of the game.
I see so many people asking, “do I go to a bank or the dealership for a loan?” Well, they are the same thing. When you go to a dealership they have a network of banks they work with to get people approved for loans. However, they might only work with one or two banks. For example, if you’re looking at a Ford Transit and you are at the Ford Dealership, they are going to try to get you approved through Ford Credit. However, you might not be approved through Ford Credit. Instead, you might find that since you use Chase Bank as your personal bank that they will approve you for a loan.
Either way, you’re making payments so it doesn’t really make a difference if you’re going about it through a dealership or if you’re going with your own with one exception. If you go to a bank or credit union and get pre-approved for a certain amount, you might have a better chance at haggling a price when you go to the dealership. You just tell them, this is your budget, this is what you’ve been approved for and if they want to make a sale, they need to make it happen. Don’t let them work you over and don’t agree to something just because you want this so bad. Take someone with you if you have to that can play the hard ass and make sure you don’t make any mistakes. I’m usually that person for most people.
Getting the financing for the van is only half the battle. If you’re going to a dealership to buy a blank slate, you’ve still got to worry about the cost of the build. Most newer or even certified pre-owned vans from a dealership run about $50,000. Paying someone else to build it might cost you the same (after electrical, building materials and labor). If you’ve got $100,000 sunk into a van and a build I really want to know what you do for work because the payment on the van is now equivalent to a house. But that’s your business not mine. Personally, that’s too much for me. I could get by on half that and use the other half to run around the country work free for a month or two but to each their own.
If you need to buy a van already converted you should consider a personal loan, because it no longer qualifies for a vehicle loan. I highly recommend going through a credit union. Again, I’m not a finance guru or anything but here are a few articles from people who’s job it is to know this kind of thing and they can explain it a lot better.
Credit Karma – Credit Union Loans
NerdWallet – Personal Loans From A Credit Union
Now, if you are handy with a hammer and nails and have some patience you can likely build out your van by yourself. It helps to know some people too. For example, my cousin is an electrician and my aunt’s new husband is HVAC and knows his way around some electrical and plumbing stuff too. I paid them a fraction of what it would have cost me to have a “professional” do it. My dad was a carpenter so I got lucky that he put me to work every summer on odd jobs. I flexed those skills with the camper and so I was fairly certain I could do the framing and actual “build” part myself. But I wasn’t taking chances with the electrical. Especially because I understand zilch about it even though I’ve read tons of books, blogs and watched about 100 youtube videos on it – it just doesn’t sink into my brain. Quiz me jeopardy style on useless history facts and I’m taking home all the money. Ask me something mechanical or electrical and I’m out.
A lot of people working on a limited budget swear by scouring craigslist, eBay, facebook marketplace, researching local builds and picking up the excess they would donate anyways and purchasing from Habitat for Humanity (which is where most construction companies donate their excess materials). You can also search junkyards for RV components as well. You can find some great steals, but the key is patience. It doesn’t all happen at once. I ended up collecting and then selling things as I went. Picked up a sink basin and then ended up finding a whole set (sink, cabinet and faucet together) later on for the same price as I paid for just the basin. I re-sold the sink basin for what I paid and broke even.
Last option you have, is to buy a used van with cash and take a personal loan out for the build, which is the route I went with. I got a secured loan through a credit union and put “vehicle maintenance” as my reason for needing the loan. I made sure I got estimates of what I needed done and submitted them with my paperwork as well as how much Melon could resell for, which was a lot more than the amount of the loan. Since I worked hard for a year to get my credit score as high as I could get it, I got really favorable rates. I was also able to get rid of my daily driver and my apartment, which means I was able to live in and drive the van to my 9-5 until I paid off the loan. Now I live in Melon and don’t have anything to pay except gas, insurance, cellphone and food. Oh, and the occasional hotel/campground fee. Keep your expenses as low as you can for as long as you can. Especially if that means no more Spotify (yes, you can handle the ads) and do you really need Amazon Prime if you don’t have anywhere to send the packages too? I kept netflix but I also watch the same shows over and over, so I bought those on DVD and just renew my subscription whenever new seasons of something come out. You can check out more budgeting tips on the blog I wrote on !!!!!!!!!!!!! How I Paid For My Camper In 3 Months!!!!!!!!!!!!!!!
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