You’ve decided to buy a caravan, you’ve seen the one you want, and you’ve already started daydreaming about the upcoming adventures that await. It’s easy to get excited as you start planning your routes and looking at campsites. But then you get stopped in your tracks by the price. We’ve all been there and there’s no escaping that whether buying brand new or used, purchasing a caravan is always a big investment. That’s the case for first time buyers and for those of you who have been caravanning for years.
There are many ways to purchase a caravan to help you manage the financial burden. You can, of course, purchase it outright if you have the money. Or, if you have a model to exchange, then part-exchanging may be the way to go. But for many people, buying a caravan on finance is the best way to go. In this guide we will talk you through what caravan finance is, how it works and the different types of finance available.
How does caravan finance work?
Caravan finance is the ideal way to make the full cost of a caravan more affordable. Just like a mortgage on a home, finance allows you to pay a small chunk of the cost up-front, before paying off the rest in manageable monthly instalments.
It is worth mentioning, however, that finance is different from a mortgage in one important way. When you purchase a home, it is very much a financial investment. The home will often hold or increase its value as you continue to pay it off. However, a caravan, much like a car, will depreciate in value as time goes on. So that’s something you may wish to bear in mind.
Also, if you have the cash in the bank, then buying a caravan outright is always the cheapest option. This is because when buying on finance, you will have to pay some interest on your purchase. However, for most people, finance is the easiest way for them to make their purchase and get started on their caravanning journey.
When it comes to the deposit, you will typically be required to pay 10-20% of the value of the caravan up front. However, some lenders will ask for less. In some cases, you may even be able to purchase a caravan on finance without paying a deposit. Though this is less likely.
Caravan Finance Options
When it comes to buying a caravan on finance, there are a number of different purchase options available to you. Below we outline some of the most common caravan finance options.
Personal Contract Purchase (PCP)
Personal Contract Purchase (PCP) is often the best option for people looking for lower monthly payments on a higher value model. With PCP, you pay an initial deposit and then you pay off the next amount of the total cost with low monthly payments. PCP then requires one final payment that is significantly larger than the others at the end of the agreed period. This payment may be referred to as the ‘balloon payment’. After making this final, larger payment, you then own the caravan outright.
If you do not wish to make the final payment, then you can either hand the caravan back to the seller or you may be able to negotiate a new agreement on a different caravan.
Basically, until that final payment is made, you don’t actually own the caravan. Due to the low monthly payments, you will often end up paying more in interest over the term of the loan compared to the Hire Purchase finance option.
This means that PCP is slightly more expensive, but it does allow buyers to get their hands on a more expensive model.
Hire Purchase (HP)
Hire Purchase (HP) is similar to PCP, however, with HP you don’t have a huge balloon payment at the end of the loan. With HP, you will pay a deposit up front followed by monthly sums.
These monthly sums will include the outstanding balance on the purchase, as well as any interest. This is all split out into equal amounts that you pay off each month.
Towards the end of your payments, you may then be required to pay a nominal ‘option to purchase’ fee. At this stage, the finance company will usually transfer the ownership of the caravan to you.
Personal Contract Hire (PCH)
Personal Contract Hire (PCH) is another good way of getting your hands on a caravan. However, this option is more a way to lease a caravan, than to buy one. You’re technically hiring it, as opposed to borrowing money to buy it.
During a PCH arrangement, you pay a deposit up front and then pay a set of monthly instalments. These instalments will often be lower than other finance agreements.
However at the end of the payments, as long as the caravan is still in good condition, you simply return it.
Is it hard to get finance on a caravan?
Generally speaking, it is not too difficult to buy a caravan on finance. Just like with other loans, a poor credit score may make it more difficult to gain credit or to find affordable loans with low interest rates. However, it won’t make it impossible to get finance. It doesn’t even mean that you will not be able to finance a caravan at an affordable rate. A number of finance providers will still be able to offer good deals to people with poor credit ratings, so it is worth doing some research when shopping around for deals.
Can you buy new and used caravans on finance?
The short answer is yes! Most dealerships will offer you a finance package on both new and used models. Though some will have certain stipulations when it comes to providing finance on older models. You may find that some dealers will only offer finance on caravans that are under 10-years-old.
To top it off, you may even be able to secure finance to purchase a caravan from a private seller. Not all finance providers will be able to offer this service, but there are some out there that will. So again, it’s worth doing your research before settling on a purchase.
What are the benefits to purchasing a caravan on finance?
If you are considering purchasing a caravan on finance, then you may be interested in some of the ways this can benefit you. Here are some of the reasons people choose to buy a caravan on finance:
- More budget-friendly: Finance will allow you to get your hands on a caravan that you otherwise wouldn’t be able to afford. And whilst some finance options mean that you spend more money over the course of the loan, due to interest payments, finance will generally make things more affordable at the point of purchase. So for many people, who don’t have huge amounts of cash available up-front, finance allows them to realise their dream and purchase a caravan.
- Part-exchange your current model to make up some of your deposit: If you already own a caravan, some dealerships will allow you to use your current model as part of your down payment when buying a caravan on finance. This makes your deposit smaller and more affordable, which may mean you can afford a bigger or more expensive model this time round. If you are trading in your current model, you will want to get a few quotes, to ensure you are getting the maximum possible value for it.
- Finance offers plenty of flexibility: When shopping for a finance deal, you have the flexibility to choose the length of the loan and the amount of money you want to borrow. This can offer more flexibility when shopping for caravans than if you had to purchase the model with cash up-front.
Applying for caravan finance
If you’ve read this guide and you’re interested in buying a caravan on finance, then there are a few things you will want to take into consideration. Here are some things that we feel you should bear in mind before signing on the dotted line…
Do your research and shop around!
Before you sign up to a specific finance deal, it’s worth shopping around. You will want to make sure that you know all of the options available to you. Different finance providers will offer different deals and repayment rates, so be sure to speak to a few providers before settling. During this period, you’ll also need to get an idea of what type of finance option best suits you. This means deciding whether you’re going to opt for PCP, HP, or PCH.
Understand the total cost
It is always worth double checking your loan deal to ensure that you are fully aware of the total cost. That means understanding how much you will pay for the deposit, how much your monthly repayments will be, what the interest rates are, and if there are any other fees, such as a final balloon payment or negligible option to purchase fee. You’ll also want to be sure you’re aware of any possible hidden costs that may pop up throughout the loan. It’s a good idea to find out the ‘total amount payable’ as this is the total amount of money that you will have paid come the end of your finance agreement.
You should also be aware of the APR or Annual Percentage Rate. This is the total amount of interest that you will pay each year on the amount you are borrowing to purchase your caravan. The APR should also include any possible fees that you may have to pay if you fail to meet your payments.
Another thing to consider is whether your loan comes with a fixed rate or an adjustable rate. A fixed rate means that the amount you pay each month will stay the same all the way to the end of the contract, regardless of the Bank of England Base Rate.
If your loan has an adjustable rate, then the interest rates that you are paying may change based on broad market trends and the Bank of England Base Rate.
Be aware of your credit rating
It is important that you are fully aware of your credit rating before you apply for finance. This is because if you have a poor credit rating, you may not be able to apply for certain types of loans. Knowing your credit rating will save you time as you won’t spend time applying for loans that are not suited to you.
Things you can do to help improve your credit rating include:
- Ensure you are registered on the electoral roll at your current address.
- Make sure you pay your accounts on time and in full each month to show lenders you are a reliable borrower.
- Avoid accumulating high levels of debt.
- Avoid making late payments on bills or other standing orders and direct debits.
- If you have credit cards you don’t use, cancel them.
- Check your credit report for errors and report any that do arise (this is very important!).
If you’re unsure, ask!
If you’re not sure about the deal being presented to you, then you should always ask for clarification. Don’t feel pressured to sign a deal without fully understanding its terms.
If there’s a part of the contract that you’re not sure about, or there’s some information missing, then ask the provider to fill you in. They will usually be happy to help. And if they aren’t, or they don’t fully satisfy you with their answer, you can always go elsewhere and find a different provider.
You may also be able to get advice from professionals at the Money Advice Service and Citizens Advice Bureau.
Spidersnet