Purchasing a caravan or motorhome can mean more holidays, more family time and more opportunity to see the world. With the right caravan or motorhome finance deal, life on the road can be very achievable.
What types of caravan or motorhome finance are available?
A conditional sale means that the borrowing is secured on the caravan or motorhome itself until the debt is cleared. A deposit is paid first of all, usually to a value of 10-20% of the total debt, and then subsequent payments are made at a fixed interest rate over a fixed payment term. As the loan is secured, the borrower can benefit from favourable interest rates as the risk to the lender is reduced.
A hire purchase agreement is dependent on the credit score of the potential borrower, with the most favourable score attracting the most favourable rates and terms. A hire purchase agreement is often an interest-free loan meaning that the cost of the caravan is simply split across the length of the term, with no additional costs. The caravan or motorhome becomes the legitimate property of the borrower only when the final payment has been made. If payments are defaulted, the lender has the right to repossess the caravan, so borrow only what you can afford to repay.
Second charge mortgage
A second charge mortgage can also be used to purchase a caravan or motorhome. This large sum loan is secured by using the borrower’s house as collateral. The house is then at risk should repayments not be made. Securing the loan against an asset means that a borrower can benefit from low interest rates and a lengthy repayment term. However, more interest is repaid overall and a long-term commitment to repaying a loan increases the chances of financial change, which may affect the ability to repay the loan.
Taking out a personal loan is a popular way to purchase your caravan or motorhome, as the lending can be arranged quickly and without a deposit. The personal loan is granted based on the applicant’s credit score and their perceived ability to pay it back. The most preferential rates are reserved for those with the best credit history. This personal, or unsecured, loan means that the borrowing is not secured against the caravan or motorhome, meaning it is not at risk should payments be defaulted.
However, failure to make your personal loan repayments can result in charges, court judgements and considerable damage to your credit score. Whatever finance route you wish to go down, make sure that you shop around for the best deal to suit your individual circumstances. Although you can benefit from holidays sooner by spreading the cost of the caravan or motorhome, don’t forget that the debt must repaid whatever the season.