Tips to Qualify for RV Financing with a Low Credit Score

In this article:

• Exploring low-credit RV financing options for full-time RV rental companies.
• Breaking down the types of RV loans for low credit scores available, and their eligibility requirements.

• Understanding the loan application process and how you can improve your loan approval potential over time.

The best RV rental companies have a fleet that allows them to meet demand at all times of the year. To build a successful RV rental fleet, though, you need capital. Entrepreneurs with a less-than-perfect credit history may find it much more difficult to acquire the affordable financing they need to scale. Whether your personal FICO score or business credit score was hit by past financial setbacks, or your current debt limits your available loan offers, it’s still possible to secure RV financing with bad credit.

In the rental industry, your vehicles are your revenue-generating assets. Lenders who specialize in RV financing with bad credit often look beyond the three-digit FICO score to see the potential of your business model.

Can You Get RV Financing with Bad Credit?

A credit score below 660 on the FICO model is generally considered to be “near-prime” or “subprime.” Most traditional banks have minimum credit score requirements for loans, and when your score is below this threshold, you may not meet these credit requirements.

However, there’s plenty of RV financing with bad credit available from other lenders, including credit unions, specialized online lenders, and in-house dealership financing. While you may not be able to secure the best RV loan rates that you might with good credit, eligibility is the name of the game when you have a limited number of loan programs available.

The Trade-Offs of Subprime Financing

While subprime financing is available, it’s important to be realistic about the loan terms of RV financing with bad credit. Because the lender is taking on more risk, they’ll compensate in other areas:

• Higher interest rates: Expect to pay a higher annual percentage rate (APR) due to increased interest rates and higher loan fees.

• Larger down payments: Most lenders will require a larger amount of money upfront to limit their exposure.

• Shorter terms: RV financing with low credit scores may limit your loan term. Whereas prime borrowers may be able to lower their monthly payments by extending the loan term, subprime borrowers are likely to have to accept shorter terms and higher payments.

RV financing with bad credit won’t grant you the most competitive rates, so it’s crucial to factor these higher costs into your nightly rental rates. The goal is to ensure a new RV or camper still generates a net profit after you’ve paid the debt service.

6 Strategic Steps to Secure Financing for Your Fleet

If you’re a business owner seeking RV financing with bad credit, you must shift the conversation from your past credit history to your future cash flow.

1. Leverage Equipment Financing

Equipment financing models use the vehicle itself as collateral for the loan. While most business and personal loans are collateralized in some way, equipment financing ties the loan terms to the asset being acquired. If you’re unable to repay the loan, the lender can take the asset and sell it to recoup its losses. This mitigates some of their risk. Lenders are more likely to approve RV financing with bad credit when they know they can repossess a high-value asset if payments stop.

Moreover, rental businesses can present an RV as a revenue-generating asset, which may make it more appealing to commercial underwriters.

2. Prepare a Rental Pro Forma

The rental pro forma is how you demonstrate that potential value to underwriters. It’s essentially a financial projection that shows exactly how much revenue the unit will generate. For example, if you can prove that a $50,000 travel trailer will earn $1,500 a month in peak season, you demonstrate that the business can comfortably handle the loan payments. Highlighting your occupancy rates can be a gamechanger when applying for RV financing with bad credit.

3. Save for a Significant Down Payment

The loan-to-value ratio is a very important metric for subprime lenders. If you’re seeking RV financing with bad credit, putting down 20% or more lowers the lender’s risk and may increase the likelihood of loan approval. Putting skin in the game — especially for a used RV that has already experienced some depreciation — creates immediate equity. That makes the loan safer for the lender to approve.

4. Target Older, High-Yield Units

Brand-new Class A motorhomes depreciate the moment they leave the lot. For a rental business owner with credit challenges, used RVs and campers are often easier to finance. They have a more stable value floor, and the loan amounts are smaller. Specialized lenders for RV financing with bad credit often prefer these units because they’re easier to liquidate if necessary.

5. Utilize Dealership Financing

Some commercial RV dealers offer in-house financing programs. Because they own the inventory and the finance company, they have total control over the approval process. These are often the most flexible sources for RV financing with bad credit, as they prioritize your ability to make the weekly or monthly payment over your credit history.

6. Ensure Rental Use

Not all lenders will allow you to use an RV purchase for commercial purposes. As a rental operator, you must ensure RV loans for low credit scores permit you to rent the RV to third parties. Institutions that understand the sharing economy may also be more willing to look past a low credit score if they realize the vehicle will generate a profit.

How to Improve Your Eligibility

Securing RV financing with bad credit can help you take a step towards locking in better rates in the future. Your first few fleet units might carry high interest rates, but they also provide a way to rebuild your credit profile. But to use subprime financing to build credit, you need to qualify first. If you’re concerned about your credit approval, these actions can help improve your eligibility:

• Check your credit report: A Consumer Reports study found that nearly half of participants found errors in their credit report. A debt you’ve already paid that hasn’t been removed from your report, or a debt that isn’t yours, can have a big impact on your credit score. Before you apply for funding, it never hurts to check your credit report to ensure its accurate and up to date.

• Pay down other debt: Every on-time loan or credit card payment helps build your credit and lowers your total debt. A lower debt service coverage ratio can improve your approval odds and help you qualify for lower rates.

• Consider a co-signer: If your business is new and your credit is low, most lenders will require a personal guarantee. If your score is too low to qualify on your own for RV financing with bad credit, a co-signer with a strong score can drastically change the outcome. A co-signer reduces the lender’s risk and, therefore, can drop your APR.

• Build business credit: Ensure your lender reports to the commercial credit bureaus (Dun & Bradstreet, Experian Business). Not every lender does this automatically, so it’s imperative that you check with your lender. This score is separate from your personal credit score and can help improve your business’s credit eligibility in the future.

• Consolidate debt: As your rental revenue grows, use the profits to pay down high-interest revolving debt. This improves your debt-to-income ratio, making RV financing with bad credit more accessible. In the future, it can help you lock in better RV loan terms.

Final Thoughts

A low credit score is a hurdle, but it doesn’t eliminate your chances of getting financing for your business. By focusing on down payments, revenue projections, and specialized lenders, you can lock in RV financing with bad credit. Every recreational vehicle you add to your rental company is an opportunity to increase your cash flow, demonstrate your financial competence, and scale your business. The more your business scales and the more you pay off debt, the high-interest loans you take today could turn into lower-interest financing in the future.