An upside-down loan is an outstanding balance that exceeds the market value of your boat or RV. Essentially, you owe more than your assets are worth. This frequently occurs with buyers who see their vehicles lose value faster than they can pay off the loan. Keep reading to learn the details behind upside-down loans and tips to remediate the issue.
The easiest option is to sell your assets. Reach out to your local lending company and discuss the logistics of paying off your loan in combination with selling your vehicle. If you’re planning on selling your assets to make room for a new RV or boat purchase, you can add the amount you owe onto your new loan. When looking to sell, you have a few avenues available:
- Local dealerships
- Direct consumers
- Third-party listing websites
Generally speaking, it’s best to sell it yourself because you’re more likely to flip it at a higher price than dealership rates. The bad news is you’ll rarely get enough capital to pay off your loan, which can set you up to start upside-down on your new vehicle.
If you have a sentimental attachment to your vehicles and don’t want to sell them, it’s possible you could work out an alternative plan with your lender. Discuss your situation with your finance provider and credit union. Find out alternative payment structures they might offer to help you pay off and keep your vehicle.
It’s easier in theory, but if you have extra money available, you can use it to pay off your loan balance quicker. Increasing your monthly payments can reduce the length of your loan requirements and provide you with more flexibility when looking to sell.
If you initially borrowed your loan with poor credit, you were likely given high interest rates. If your credit score and financial standing has improved since then, you could try refinancing to a better loan. Receiving lower rates means you’ll pay less interest each month. As a result, your payments can potentially make a bigger dent in the loan balance, and you may get back above water sooner.
The factors determining RV and boat financing options are different, and many things impact the rates and length of the loan you receive.
When choosing to refinance a recreational vehicle loan, your terms depend on your credit score and the age, model, and make of your RV.
The biggest factor affecting your loan terms is the cost of the RV itself. The more expensive your recreational vehicle is, the higher your monthly payments and longer loan terms will be.
Your credit also plays a significant role in the loan rates you can qualify for. If you have a poor credit score, lenders tab you as a liability. This limits your flexibility on determining your monthly payment amount and loan length. Unless you show you can pay off the loan, you’ll need to improve your credit score to qualify for better financing options.
Compared to standard auto loans that last anywhere from 12 to 84 months, RV loan terms typically are extended over a number of years. Generally speaking, RV loans last anywhere from 120 months to 240 months.
Boat loans are similar to RV loans, in the sense that you pay back a specific loan amount with interest over a fixed term. There are several places to apply for boat loans, such as:
- Credit unions
- Finance providers
There are two types of loans these providers offer: secured and unsecured.
A secured loan is backed by personal collateral. If you become upside-down or default on the loan, your lender provider takes the collateral as a form of repayment. Some states have laws where if you stop making payments altogether, the lender has the right to repossess it.
Unsecured loans don’t require you to surrender your assets as collateral. Because they have no guarantee of repayment, lenders view them as riskier and typically charge higher interest rates. However, generally speaking, you have more flexibility in determining your loan terms with an unsecured boat loan.
How long you can finance a boat for depends on a few factors. Most boat loan lenders often require a down payment between 10% and 20%, depending on the lender and the cost of the boat. It’s not uncommon for lenders to entice customers with a 0%-down loan. However, keep in mind that making a down payment hedges against your boat’s depreciation rate, preventing the loss of value over time—helping prevent upside-down loans. The size of your down payment can significantly reduce the cost you owe, resulting in better interest rates.
Upside-down loan insurance is available to boat and recreational vehicle owners. Commonly referred to as GAP Insurance (Guaranteed Asset Protection), it protects you if your vehicle is totaled by paying the remaining difference between the cash value of your asset and the balance still owed on the financing.
There are both pros and cons to investing in upside-down loan insurance. While it offers significant protection in certain situations, it can be costly.
- Gap insurance helps you leave an accident with less of a financial burden.
- You can purchase a more expensive vehicle with less stress.
- Eventually, the difference between what you owe and the car’s value will drop, leaving you with an upside-down loan.
- It is an extra expense on top of monthly payments and regular upkeep.
- It isn’t necessary for vehicles with low market value.
If you have an upside down loan, and are looking to alter your payment structure, reach out to the experts at Finance Solution. We pride ourselves on continually delivering the best loan options available. Check out our loan calculator and see how much you could save.