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Recreational vehicles — such as boats, motorhomes, motorcycles and all-terrain vehicles — might be a part of your retirement dreams, but that doesn’t mean you should spend your nest egg on one. To avoid having to pay the whole cost up front, you might consider financing your purchase rather than paying cash. Follow these tips to make sure you’re getting the best deal and save money on taxes, too.
Even if “second home” isn’t how you think of your boat, RV or other vehicle, you might still qualify to deduct the loan’s interest on your taxes. To be a second home, the vehicle must have sleeping, cooking and toilet facilities.
You can only deduct interest on up to $1 million of combined home debt — your primary residence and second home — and you can’t have more than one second home at a time. Plus, if you rent out your boat or RV, you must personally live in it for more than 14 days or more than 10 percent of the number of days that you rent it out during the year. Otherwise, your boat or RV will be considered a rental — not a second home.
Before you visit dealers or showrooms, get preapproved for a loan. Preapproval lets you gauge how much lenders will allow you to spend, which can keep you from considering vehicles that exceed your budget. You can also compare promotional offers, review introductory interest rates and discover hidden fees — all of which can help you find the best deal.
Once you’re preapproved, go to a boat, RV or ATV showroom and make offers to vendors knowing you already have financing in place. By using this strategy, you can avoid feeling pressured to accept a less appealing financing offer from the dealer in the interest of getting the recreational vehicle you want.
Always inspect your credit report before you go loan shopping. Unfortunately, there could be mistakes on your credit report, which could result in a loan denial or an unsatisfactory interest rate offer.
After you’ve confirmed your credit status, shop around to find the lowest rates on boat loans, RV loans or ATV loans. Check with several different dealers and banks to compare fees, rates and repayment periods to make sure you’re getting the best deal.
Learn: How to Read a Credit Report
Using funds from a home equity loan or home equity line of credit to pay for your purchase could save money on interest. The interest on the first $100,000 of home equity debt is generally deductible as well as part of the mortgage-interest deduction. But, remember, you’re pledging your home as collateral — if you default on the loan, you could lose your home.
Another benefit when you pay with cash from a home equity loan is that you can sidestep financing issues like having to purchase a certain year model. Whether you want to buy a yacht or a four-wheeler, you make the final decision.
Related: 5 Best and Worst Ways to Leverage Your Home Equity
The shorter the term you select for repaying your vehicle loan, the more likely you are to get the best interest rate, according to LendingTree. Plus, because you’re borrowing for a shorter period, the total cost of your camper, motorhome or ATV will be lower because you’re paying less in interest. Of course, the downside to a shorter term is that you have higher monthly payments — which you might not be able to afford.
At some banks, if you open another account, such as a checking account, you will receive a lower interest rate on your motorhome financing. For example, at Mountain America Credit Union, you receive a 0.25 percent discount on your interest rate for your RV or ATV loan when you also open a MyStyle Checking account — an account with no maintenance fee as long as you have an average balance of $2,500. If you borrow $50,000, the discount could save you $125 per year in interest.
Some lenders offer an additional discount on interest rates for motorcycle loans if you sign up for automatic payments from a checking or savings account. For example, Hudson Valley Federal Credit Union offers a 0.25 percent interest rate reduction when you set up autopay.
Not only do you pay less in interest, you also don’t have to worry about missing a payment and hurting your credit score. Similarly, Commerce also offers a 0.25 percent discount on boat loans when you pay automatically from another Commerce account.
Find Out: How to Stop Automatic Withdrawals
Often, variable-rate loans offer an introductory interest rate for the first few months, followed by a rate that fluctuates with market interest rates. If interest rates fall, so will your monthly payment. But, if interest rates go up, a fixed-rate loan with a locked-in rate is a better option.
For example, America First Credit Union is currently offering 3.99% APR on a seven-year variable rate ATV loan versus 4.99% APR on a seven-year fixed-rate ATV loan.
If you can fit it in your budget, increase your down payment to qualify for the lowest interest rates when you buy a boat or vehicle and finance the purchase. The larger your down payment, the lower the risk for the bank. If you do default on the loan, the bank is more likely to at least recoup what you owe from selling the asset.
For example, America First Credit Union requires at least a 20 percent down payment to qualify for its best interest rates on RV loans and at least a 25 percent down payment for the best rates on boat and ATV financing.
See: Down Payments and 9 Other Things You Should Never Put on a Credit Card
Buying last year’s model of ATV or boat can earn you extra incentives with a dealer. Dealers want to make room for the newest models, so they might be willing to be more flexible with terms or price on older models.
For example, Polaris is offering rebates on 2014-2017 ATV models to make room for the 2018 models. A bigger rebate means you don’t have to finance as much, saving you money on your loan.
Whether you’re buying boats, travel trailers or even an amphibious ATV, when you receive offers from lenders, remember they’re called “offers” for a reason. Although some lenders will give you their best offer the first time, you might be able to haggle your way to a better interest rate or other incentives. Hopefully, you’re going to have your new toy for many years — if not decades — so it’s worth investing the time and energy to negotiate the best deal.
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