Motorhome Buying cash vs finance

[smggsm]

I'm in the market to buy new solera .. Which option better way to save money ? pay cash upfront or monthly payments ,, can we write off the interest rate , is this gonna save money 10 15 30 years?

[Campin Cajun]

It's best to talk to an accountant about the tax write offs. It really depends on your individual situation. But yes there are avenues out there for tax breaks.

For me, it was better to trade in what I had on my motorhome and pay monthly notes. Again this will depend on your situation. I don't like just giving up all that cash on something that depreciates.

[Ricochet]

Personally, I chose the payment option. I did this because my interest rate was lower than the rate of return on the money if it were invested. So, let's say my rate of return is 7% and my interest rate on a loan is 5%. I make 2% on the money rather than paying it out in a lump. Clear as mud?

[jonrjen]

I have always paid cash in the past, in todays current mix of social and economic conditions and uncertainties I believe I would lean more towards using other peoples money and finance the RV.


But as another has pointed out, what would work the better for me may not be the best avenue for you to ride down.

[ipolyihh]

I did some of each:

after looking over the 24S for some hours,
told them I would give a 10K check pending their review of my old unit, if they upped offer

took a couple of days to empty my old unit & put in ( not remount all the items I had stripped off the old unit: wheel covers, step, TV & antenna )

went in & closed the deal with a second 10K check, taking their 4.99 % finance plan since it paid off the remainder of my 5.25 % financing @ USAA

a month later I talked to USAA, the refinanced the unit @ 4.25 % 15 year

paying off @ $ 1000.- per month reduces the total interest from 25K to 11K

see: Time Payments Calculator ( my mortgage repayment calc )

[prof_fate]

ask your tax guy but unless you itemize it's not likely the interest will be much of a deduction.
What interest rate are they charging vs where you have your money now? I have passbook savings in 3 banks..one pays 1.5% the rest under .5 %...but if you have the money in something paying 5% or better and can get a loan at 3% or less it's worth getting the loan.

My car loan is at 1.23%..not worth pulling money out of a decent interest bearing account to pay cash for it.

[Big bird]

Paying cash is usually your cheapest option. Your personal finance requirement should dictate how much cash you need in reserve. That is your personal decision. You may be able to take a deduction for the MH as a second home, but this is a very small deduction. The question you should ask yourself is if you finance what will I do with the cash I do not use? I would assume a loan interest rate of perhaps 6%, but you may have resources to beat that, and what can you invest the cash in that is better than 6%. If you are in the stock market you have seen 20 + % earnings rates the last few years. But this will not last. The bank will pay maybe 1%. You should beat the 6% rate by at least 2%.

[DKRITTER]

Renting somebody else's money, really.


Say you have a perfectly good car sitting in the driveway and you call Avis to rent a car to go to the store.


Tax deductions, really!


So you buy something and pay say $10,000.00 a year in interest which you get to write off. If you are in a 35% tax bracket you get to write off $3,500.00 right. So you paid the bank $10,000.00 to write off get back $3,500.00 in taxes, really.

[Joseph Carozzoni]

We bought in July 2013. We had CD’s maturing that were paying 3.2%. The best loan we could find at that time was 4.5% even though automobile loans at the time were under 3%. We were told by several banks that loans for RV’s and Boats are higher because “they lose value quicker”. Never bought a boat and never owned an RV so we had no actual experience on RV/Boat depreciation – but several of those in the loan business we got quotes from had the identical story. And when you calculate in the interest you pay, the actual value of the loan (total money paid back) made the effective interest rate closer to 6%. In most cases, I believe if you can pay in cash you’re better off than borrowing.

[Witch Doctor]

The tax laws change so much it seems every year that the only person to advise you would be an accountant or tax attorney. We got to the point that it's not really even worth us doing long forum anymore. As far as a deduction for a second home that would be very sticky. I know I had a boat that we lived on full time for 5 years. We were able to write the interest off on that but then again that was late 90's early 2000.

[Terier]

Lots of good feedback has been provided. Doing the math can be helpful to determine what would work best for you. One thing I quickly found out when I was buying my little TT is that an all cash offer didn't get me a better deal since the dealer wouldn't be getting their additional portion had I financed it.

[Still Kickin]

Here is a simple way to look at what benefit there is if you finance or pay cash.

First, lets look at paying cash; Your money is sitting in an investment, either a bank day to day account, mutual funds, etc. You need to look at the interest income, capital gains, etc. not earned from the money over the term of the loan, that is one number. That number is more available than you think, just look at last years tax return and pull that number, asthat is what you can expect to lose x the number of years of your loan.

Then compare that number with the total interest paid on the amount borrowed for the same period. That number is simple to determine also. Take the total payments of the loan, minus the principle and that is your second number.

That tells you what your cost of money is for your purchase. Two varibles enter into this equation, income tax not paid on earned interest, because you used cash to make the purchase. And, interest expense allowed on the loan which is deductable from your income in the years paid. That is minor in the equation when just comparing the two numbers.

Remember, that your not a big shot because the gov't allows you to deduct the interest, thats just allowed under the current tax laws.

Save the visit to your tax preparer, they will do what I just explained, if their any good, and possibly charge you too. Tax attorneys are worthless, they only fleece your pockets, if your the guy with the return that is being audited, not should I do this or that.

It's not hard, and you really should know how to do this, after all it is your money!

[jwedell]

I have a different outlook. My father in law purchased an expensive car and shortly after died. Instead of making the large payments, and his wife didn't drive any more, called the bank and told them he died and to come and pick up the car which they did (no more payments). If we should ever upgrade to an expensive motor home that is what I will also do.

[dustman_stx]

One important factor to consider is the amortization schedule on a loan. You pay the bulk of the interest up front. Therefore, if you plan to keep the RV long term and have your money making more on interest, it might be more beneficial to finance. If you don't typically keep things long term and likely won't have the RV more than, say, 3-5 years, you'd need to be making significantly more through investments to make it feasible to borrow.

[Still Kickin]

Originally Posted by dustman_stx

One important factor to consider is the amortization schedule on a loan. You pay the bulk of the interest up front. Therefore, if you plan to keep the RV long term and have your money making more on interest, it might be more beneficial to finance. If you don't typically keep things long term and likely won't have the RV more than, say, 3-5 years, you'd need to be making significantly more through investments to make it feasible to borrow.

True for a "mortgage" on real estate, not true for a loan on an RV. One caveat would be an early payoff penalty, but even those type of loans are not to common.

[dustman_stx]

Originally Posted by Still Kickin

True for a "mortgage" on real estate, not true for a loan on an RV. One caveat would be an early payoff penalty, but even those type of loans are not to common.

Then I guess bankrate doesn't know what they are doing. I can go to bankrate.com and run an amortization table on the auto loan calculator page that clearly shows heavier interest paid early on just like a mortgage does. To my knowledge, RV loans are calculated just like car loans. Does bankrate.com have it wrong????

Auto loan calculator - Bankrate.com

[DaveJordan]

No...bankrate has it right.

For most (I'd say "any" but there may be outliers) loans with a fixed interest rate, a fixed term, and a fixed payment, the early payments will be more heavily weighted toward interest while the later payments will be more heavily weighted toward principal.

Dave

[DKRITTER]

The interest charged is based on current balance X interest rate. That is why you pay more $$ in interest at the beginning of the loan.


This is another reason why not to borrow money, you pay mostly interest early in the loan and very little principle, i.e. your money goes to the bankers.

[Still Kickin]

I should have been more clear, when I mentioned the part about paying a loan off early and the penalty for that. It goes into the type of loan you originally agreed to when making your RV purchase. Here is a more in depth explanation of my point. So, be informed and ask your lender!

Interest Calculated by ‘Simple Interest’ Method:
Just as the name suggest, this method is the simplest among all. It is not only simple as with the respect of its calculation but also with the respect of the amount of interest it determines.

This is basically a method whereby interest is calculated by applying interest rate on the principle in every period. This one gives the lowest amount of interest.

‘Compound Interest’ Method:
This particular methodology of determining interest over the loan you take may prove to be a little perplexing. Not only the method of calculation seems difficult, the amount of interest may also be in excess to that calculated in the prior method. Fundamentally, this method includes all the previous accumulated interest in the principle before the interest rate is applied to it, for calculating interest in any specific period.

‘Rule of 78’: Another Method

This method is another common one used out there for the calculation of interest. It, basically, goes by the principle that more interest should be charged to the earlier periods than to the later periods. This is meant to penalize those who tend to pay back interest earlier than it is scheduled to be paid.

This method involves calculating interest as per the weights allocated to each specific period. Allocation of weights occur on a reverse basis, that is to say, earlier periods are assigned bigger weights and later periods, lesser. Under this rule, essentially, if someone plans to pay back loan exactly in the scheduled amount of time, he’ll end up paying exactly as much amount of interest as he will otherwise pay under ‘Simple Interest’ method.

This is the important part;

There are two basic types of auto loans: simple interest loans and pre-computed loans.

With a pre-computed loan, the interest owed over the life of the loan is calculated using a standard amortization table. Once you sign on the dotted line for this type of loan, you're obligated to pay back principal plus the full amount of interest that will accrue over the entire term of the loan.

To sum up, interest on a pre-computed loan is calculated in advance and you're on the hook for every penny of it when you sign.

In contrast, with a simple-interest loan you're charged interest each day based on the balance you owe. So the quicker you pay down your balance the less interest you pay. A simple interest loan with no prepayment penalties rewards customers who pay ahead.

Pay ahead with a pre-computed loan that applies the "Rule of 78s" method to prepayments and you'll be slammed with a penalty, disguised as a rebate.

Hope that helps. What you need to take away from this is ask the important questions. Also, as a general rule, credit unions are more in your corner so to speak, and are generally more "friendly" because your a member.

You can do all the Bankrate calculations you want, but it's really all about whats burried in that "fine print" of the loan agreement.

[Still Kickin]

Originally Posted by dustman_stx

Then I guess bankrate doesn't know what they are doing. I can go to bankrate.com and run an amortization table on the auto loan calculator page that clearly shows heavier interest paid early on just like a mortgage does. To my knowledge, RV loans are calculated just like car loans. Does bankrate.com have it wrong????

Auto loan calculator - Bankrate.com

Nope, they have it correct for the loan type in their program, the problem is the assuption by the borrower at the time the loan is cast.