Long terms on a depreciating asset
Recreational vehicle loans are frequently written over ten to twenty years, which is mortgage territory for something that behaves like a car. This calculator makes the consequence visible.
On the default scenario the interest approaches three quarters of the amount borrowed. That is the price of stretching a depreciating purchase across fifteen years.
The formula behind the number
An amortising loan is repaid in equal instalments. Each one covers the interest that accrued since the last payment, and whatever is left reduces the balance. The instalment that brings the balance to exactly zero on the final payment is:
Here P is the amount borrowed, i is the monthly rate (the annual rate divided by 12) and n is the number of payments. Nothing else enters the calculation, which is why two lenders quoting the same three inputs must arrive at the same instalment.
Worked example: $60,000 at 8% over 15 years
The calculator opens on this scenario, so you can follow every step:
- Amount borrowed: $60,000
- Annual rate: 8%, so the monthly rate is 8 ÷ 12 = 0.6667%
- Term: 15 years, so n = 15 × 12 = 180 payments
Paying $573.39 every month for 180 months comes to $103,210. Subtract the $60,000 you actually borrowed and the cost of the credit is $43,210, or 72% of the sum borrowed.
Where each payment goes
The instalment never changes, but its composition does. The first payment carries $400.00 of interest and only $173.39 of principal. By payment 90 the split has moved to $260.17 interest against $313.22 principal.
| Payment | Instalment | Interest | Principal | Balance |
|---|---|---|---|---|
| 1 | $573.39 | $400.00 | $173.39 | $59,827 |
| 2 | $573.39 | $398.84 | $174.55 | $59,652 |
| 3 | $573.39 | $397.68 | $175.71 | $59,476 |
| 90 | $573.39 | $260.17 | $313.22 | $38,712 |
| 180 | $573.39 | $3.80 | $569.59 | $0.00 |
Compare the balance column against what a fifteen-year-old vehicle is worth. For most of the term the debt is likely to exceed the resale value, which limits your ability to sell or trade.
What moves the answer most
Two levers change the total, and they do not pull with equal force.
Add one percentage point to the rate and the instalment goes from $573.39 to $608.56, which is $6,330.37 more over the full term. Cut 5 years off the term instead and the instalment rises to $727.97, but total interest falls from $43,210 to $27,356. Cutting five years costs more each month but removes a large share of the interest, and it shortens the period during which you owe more than the vehicle is worth.
What this calculator leaves out
Insurance, storage, campsite fees and maintenance are excluded, and on a vehicle of this kind they are substantial. So is the risk of negative equity, which no payment calculator can show you.
Related calculators
- Depreciation calculator — what the vehicle will be worth each year
- Auto loan calculator — the shorter-term equivalent
- Running cost calculator — the outlay that continues whether you use the vehicle or not