Hi All,

I am planning to buy a used Toy Hauler Keystone Raptor for full-time living and I am trying to figure out what type of loan should I get and what is the approximate APR/APY (at least a range). I called my credit union last week and they told me that I will have to get a Personal Loan collateral if I used them and that the APR is 7.35%, which seems a bit too high for me. 

Thanks for your time!

Ele, before tapping 401k check the tax consequences first.  Borrowing from a 401k means replacing those funds with after tax dollars. When you finally take it out it gets taxed again as income.  Better to keep 401k money safe and growing until you really need it. It might be better to just borrow and deduct the interest on it as it could be considered  a home in some situations. The notion you are paying yourself back using borrowed 401k money is misleading from a financial POV. Consult a financial advisor before going this route.

JHMO, Brian

Do you have a house with sufficient equity in you could tap to buy the rig. The home equity loan interest would be tax deductible on loans upto 100K (I believe). I'm not solid on this so check it out as an option for you. If you are going FT, will you be selling your house(if you have one). with the home sold, you would end up with a paid for rig but less cash from the proceeds of the sale. Just food for thought. There are always options.

Brian

I don't own a house yet... the RV will be my first home :)... I might just pay it cash since its a 2007 and is $14000.

dream reachers wrote:

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By all means pay cash for it if you can. If you are going full time , you don't need the debt to hold you back.

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 Not necessarily.  Depending upon  return rates, and current income level, it might be a lot smarter to take that money & invest it.  Make payments (adding in extra amounts to reduce time) but keep the other money working for you and providing a safety net should problems arise.   That's what we did, financed part,  since we didn't want to pull money out of tax-deferred investments that would increase our tax rate by a significant amount.  That money is still there, making money for us, tax free, while load paid off and we a well ahead of where we were when we purchased our rig.

Barb

A lot goes into making larger purchases and running numbers for income vs expenses and determining free cash flow will give you a handle on what you can afford to finance if you go that route.  Understanding the various kinds of risk each alternative has will also guide your decision making.  While I'm fan of paying cash, Barb is also right that it's not always the best solution, YMMV as they say. For the record I'm also a fan of making your money work for you too. One thing to do is not get overly hung up on interest rates, the duration of the loan is more important relatively speaking. If you borrow 14000 at 3% for 30 days, you'll pay roughly $35 in interest or roughly 93 dollars at 7.95%.  Now, at 3 years the difference in those two numbers becomes more substantial. Still, a 3 year note at 7.95% is not that bad considering the timing. In the 80's you might have had to pay 13-15% or more for a personal loan, so bear that in mind. If interest rates rise, which I suspect they will after the election... 7.95% may seem like a dream come true. Caveat emptor.

There are ways to cut your interest rate but they may involve strategies that you may not be comfortable with. For example you could take your 14K and put it into self directed brokerage account with margin capability. Then buy $14K of solid dividend paying stock returning 5-6%. Then borrow $7000 on margin(margin interest is tax deductible against dividends and capital gains) for the RV at 8%. The dividend income will offset the margin interest effectively making it close to zero percent(skipping the tax ramifications which would be minimal if any) for that portion. Then get yourself a collateralized personal loan for the other 7000 at 8% thus making your total blended loan rate closer to 4% (reminder, the difference between 4% and 8% on $14K is only about $46 per month). There is risk in this strategy... the underlying stock could fall in value, enough of a fall could cause a margin call... not good. Somewhat risky for only a few percent improvement in the adjusted loan rate. On the plus side, if the stock rises in value, you could reap a tidy profit and apply that to the personal loan then reinvest the 7000 in another dividend paying stock... wash rinse repeat. I am not recommending this if you don't know what you are doing... understand any particular strategy before adopting it. All of this presumes you have sufficient income to pay the note on the personal loan. See my previous advice about consulting a financial advisor. Again there are options out there for you to explore, sometimes it requires some outside the box thinking. 

And you though you were done with school.... HA! 

FWIW, Brian

PS: If you had 28K laying around and used the same stock strategy, then you could borrow the 14K on margin for the RV and have an effective loan rate of zero percent. (margin interest minus the dividends) Knowledge is power my friend. $14K at zero percent for 3 years woud be $389 per month (or $233/mth over 5 years) paid back into the brokerage account to get out of the margin situation (but it would now make your account 42k, a 50% increase in your net position over 3 years (or 5 years)... not bad in my book (and not including any movement in the stock price). Food for thought.