Loans For Luxuries During the Pandemic

The latest statistics (updated September, 2020) by Credible, show that many people are borrowing for non-necessity items. For example, loans for boats increased over 300% and loans for RVs increased almost 200%.

The reasons for these increases are not entirely clear. There has also been an increase in loans for home improvements. This may mean that, as more people are staying home, they are investing in fixing up their homes. Perhaps working remotely could also be the reason for increases in loans for items used for leisure activities.

Whether these are wise choices is an entirely different matter. Escaping the first round of the pandemic with a job intact or working from home can lead to a false sense of security. Loans for boats and RVs are usually for very large amounts and cover long time periods. The average loan term is 15 years. This is a very long commitment period, especially for an asset that is going down in value from the day you buy it.

Unlike houses, where values generally rise, vehicles, boats, and RVs are depreciating assets – their values go down over time. This makes it almost impossible to sell such an item while there is still money left on the loan. With a house, if you can no longer afford the payments, you usually have the option of selling it and maybe even making a profit. If you can no longer afford the payments on a depreciating asset, however, the only choice you may have it to voluntarily surrender the item back to the lender.

A voluntary surrender is the same as a repossession. In either scenarios, there will probably be a deficiency balance. In other words, if you surrender an item worth $20,000 on a loan that still has a balance of $40,000, you are on the hook for the other $20,000.

More leisure time may be a silver lining of the pandemic. But buying big ticket items on credit, even if interest rates are low, may cause regrets.

Peter Blinn

For over 30 years, listening to clients and putting them at ease, while finding solutions and helping achieve future goals, in Marion County, Lake County. Citrus County, Sumter County, and The Villages.