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What You Need to Know About Gun Loans and Financing

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Demand for firearms is soaring – as is the demand for firearms lending. Gun dealers and manufacturers want to make their products as affordable as possible. So they typically work with a variety of finance companies and lenders to make it easy for their customers to purchase. Gun loans aren’t limited to gun purchases. Many people use them not just for firearms but also to buy ammunition and accessories such as safes, optics, magazines and clips, cleaning kits, cases and bags, shooting apparel, and much more.

Sources of Firearms Financing

Most firearms dealers have established relationships with one or more third-party lenders – typically ones that specialize in financing firearms and accessories. These dealers will usually finance up to 85% of the purchase price for a firearm. You would need to come up with the remainder as a down payment or via a trade-in.

Advantages of Gun Financing

  • Zero-interest period
    Some firearm finance companies offer 60-90-days of zero interest. At least one company offers up to six months of zero-interest financing.
  • No credit check
    Some lenders also do not perform a hard credit check on an application. So you can apply and get approved with no dings on your credit score for new credit inquiries. However, once you’re approved, the lender may report your loan and payment information to credit bureaus.

Note: If your credit is good, you might want a lender who runs a credit check. This is because your good credit record can help you qualify for a lower interest rate and better terms.

Disadvantages of Gun Financing

  • Fees
    A few lenders may charge application fees, processing fees, or penalties for paying the loan off early.
  • Some items can’t be financed
    Some lenders will not finance ‘Class III‘ items. These are specially-regulated items under the National Firearms Act of 1986 and include silencers, fully-automatic weapons, short-barreled shotguns, and rifles.
  • Minimums
    Unlike credit cards, a third-party firearm finance company may impose a minimum loan amount – typically $300.

What You Need to Apply for a Loan

Lenders will generally require proof of income from your job and three or four months of bank statements. You’ll also need a valid state-issued ID or drivers’ license. Some require a Social Security number, and some don’t.

Credit Cards to Finance Guns

You can finance firearms using a personal or business credit card. There are some advantages to doing so:

The Advantages

  • Credit Card Loans Are Unsecured
    You put up no collateral, so there is nothing for the lender to repossess in the event of default. 
  • Interest-free Grace Period.
    One billing cycle is interest-free. If you have a zero balance at the beginning of your statement period, credit card issuers provide for an interest-free “grace period” that lasts until your next payment due date.

Some card issuers even have an introductory zero-interest period that can last from 6 to 18 months on newly-issued credit cards.

  • Rewards Programs
    Credit card issuers may offer various reward programs as an incentive to use their card for purchases. This can take the form of cashback programs from 1% to 5%, or travel points and perks.
  • Consumer Protections
    Visa and Mastercard offer robust protections for consumers, including the ability to dispute charges if the merchant provides defective or substandard goods or services. With the current ammunition shortage, this could be a factor if you receive old or defective ammo.

Note: The National Rifle Association has a marketing agreement with the PenFed Credit Union to provide a personal credit card to qualified applicants. Possible perks include 1.5% cashback on purchases (2% cash back for military veterans and those who keep a checking account open in good standing). Another card, the PenFed Gold Visa Card, provides for up to 12-months of zero-interest on purchases. If you have good or excellent credit, you may be able to find even better terms by shopping around.

The Disadvantages

  • Interest Rates
    The chief disadvantage to using a credit card to finance a firearm is the interest rate. Like most unsecured loans, credit cards generally charge higher interest rates than other types of lenders. As of January 2021, the average consumer credit card interest rate is 16.05%, according to the CreditCard.com Weekly Credit Card Rate Report.

For borrowers with weaker credit scores, the average credit card interest rate is 25.3%.

  • Gun Specialty Stores
    Almost always work with a gun-friendly or at least gun neutral processor. But you may have trouble using a credit card to buy a gun at a general retailer or sporting goods store.

Banks and Credit Unions

You may be able to get a loan from your bank or credit union. Some credit unions that cater to first responders and public safety professionals even have special members-only low-interest loan programs specifically for firearms. For example, the Greater KC Public Safety Credit Union provides gun loans to members with terms up to 24 months and interest rates as low as 3.49% as of January 2021.

Online Lenders

In recent years, a large number of online lenders have popped up to provide a real alternative to bank and credit card loans. Typically, these lenders offer unsecured personal or small business loans. They have less overhead than banks and credit unions, and often charge lower interest rates than credit card loans for borrowers of comparable credit.

Approval is often quick, and money is transferred to your account within a day or two of approval. However, banks may be more competitive if you have a long track record with them – especially for people with higher credit scores.

Buy Now Pay Later (BNPL) Lenders

Buy Now Pay Later companies are a relatively recent phenomenon. These fintech companies are rapidly emerging as alternatives to credit cards and online lenders, especially for Internet transactions.

Typically, a retailer or dealer may contract with one or more BNPL vendors. You go through the checkout process via the website, and then you have the option to use a BNPL company. You can apply on the spot for instant approval — or if you have an existing account with a BNPL vendor, you can enter your information into the page at that time. Assuming you’re approved, the BNPL vendor will pay the retailer. They will then debit your bank account for a series of payments over several weeks or months.

Advantages

  • It costs consumers little or nothing to use BNPL. The merchant usually pays most or all of their fees.

Disadvantages

  • Loan amounts are usually more limited, especially for new users, though users with established track records can qualify for higher spending limits over time.
  • Prominent BNPL companies that work with firearms and outdoor retailers include Credova and Afterpay.

Revolving Credit vs. Installment Purchase Agreements

Broadly speaking, there are two types of gun loans: Revolving credit vs. installment contracts. With revolving debt, payments are flexible (subject to monthly minimums). You can carry the debt indefinitely.

With an installment loan, you must pay on a set schedule and completely pay off the loan within a specific number of months. Specialized firearms financing contracts are almost always installment loans or lease contracts.

Firearms Leasing

Some gun buyers choose to lease their guns rather than purchasing them outright. Individual consumers who want to lease are typically offered a closed-end consumer lease agreement.

With these contracts, there’s no interest rate per se. Instead, the lender bundles a monthly leasing fee into the payment. You don’t purchase the firearm outright. But you have the option of buying out the lease contract and purchasing the firearm at any time. At the end of the lease term, you can either buy the gun or accessory outright, or return it.

The chief advantage to leasing is in U.S. tax laws. If you are a corporation or LLC, or you otherwise use the firearm or accessories for business purposes, you can write off the entire monthly lease payment as a business expense. If you buy the firearm outright using a credit card or personal loan, for example, and you use it for business, you have to spread your deductions out over seven years, under IRS rules.

The Fine Print: What to Look for in a Gun Loan

Always read financing agreements carefully. Here are some things to look for in the fine print.

  • Interest Rate
    The interest rate is the annual cost of the loan to you, assuming you made no payments during the year, and excluding any fees.
  • Annual Percentage Rate (APR)
    The APR is the annualized interest rate you pay on any money you borrow, including any fees. Some gun loans charge APRs as high as 29% or more, while those with good credit and a good relationship with their bank or credit union may see APRs as low as 3%.

If there are any fees on the loan, the APR is a very important metric, and provides a truer picture of the total cost of the loan to you than the raw interest rate figure.

  • Secured vs. Unsecured
    With a secured loan, the lender has the right to repossess or take possession of some form of collateral if you default on the loan. With secured gun loans, the collateral is normally the firearm or firearm accessory itself. But a secured loan can be issued with any form of collateral acceptable to the lender. 

With an unsecured loan, there is no form of collateral. If you fail to make payments, you could be sued for the balance, and the creditor could get a judgment against you in court. But they’d have no direct right to seize any collateral without a court order arising from the judgment. Interest rates on secured loans are usually lower than those on unsecured loans, all other things being equal.

  • Prepayment Penalties
    Does the lender charge a prepayment penalty if you pay the gun loan off early? Some lenders don’t have any prepayment penalties. Others will waive them after a certain number of months. If your interest rate is high, prepayment penalties could become a significant factor.
  • Monthly Payments
    What is the monthly payment due and when is the due date? Can you move the due date around?
  • Fees
    Are there processing and setup fees? Some lenders charge a loan processing fee as high as $125 just to apply for a gun loan. There may also be a transaction fee of $50 to $100 or more to initiate payment to the seller, which could be passed on to you. State legislatures may add filing fees as well.

These fees can make a loan uncompetitive for borrowers with good credit – especially on smaller loan amounts. If you have good credit, it pays to shop around for more accommodating lenders.

Credit cards frequently also charge an annual fee, so be aware of these, too.

  • Deferments
    Can you skip a payment or two in a pinch?
  • Late payment fees
    What happens if you’re late? Is there a flat fee? Does your interest rate go up? Some credit card companies charge a “penalty” interest rate as high as 29%.
  • Zero-interest periods
    Is there a zero-interest period available? How long is it?

Tips for Getting a Great Gun Loan

  1. Shop around
    Terms vary widely between types of lenders, and even among lenders of the same type.
  2. Check your credit
    The better your credit score, the more choices you’ll have when it comes to financing, and the lower the interest rate you’ll be able to qualify for. It’s a good idea to check your credit before applying for a gun loan, bring any delinquencies current, and take care of any errors. You can get a free copy of your credit report once per year from each of the three major credit bureaus at www.annualcreditreport.com.
  3. Boost your credit score
    While you’re at it, there are a few things you can do to improve your credit score and make yourself more credit-worthy, including:
  4. Bring all delinquencies current
  5. Continue to pay all debts on time
    Your record of reliable, on-time payments is the number one most important factor in your credit score, according to the Fair, Isaac Corporation, accounting for 35% of your score.
  6. Pay down credit card balances
    Maxed-out credit cards are a statistical signal to creditors that you are a higher-risk borrower. Try to get your balances below about 30% of your credit limit on each card.
  7. Save Cash
    The more you can put down, the less you’ll have to borrow.

About Brian Allen

Brian Allen has been helping people make smarter financial decisions for over 10 years. As the Editor-in-Chief for Goloans, Brian writes about sage financial advice, "how to" articles, and reviews about lenders and creditors.

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