Hordes of people want to live the dream of travelling around Australia. And who could blame them, considering the diversity of our country and the natural wonders to discover and explore? What’s more, it’s a relatively cost-effective way to travel – in retirement, or with the family.
So, needless to say, purchasing a caravan, camper trailer, or motorhome is high on the agenda of many aspiring adventurers.
However, that RV you’re longing for is likely going to be the most expensive purchase you ever make after the family home, and most of us simply don’t have that kind of cash just sitting around. But many buyers also presume they don’t have the same finance options as when it comes to buying a house.
Anecdotally, most new RVs are paid for in cash, from savings, or superannuation, or, less commonly, a bank loan.
However, there are other ways to fund a caravan or camper purchase. The six most common ways are: cash, redraw on mortgage, bank loan, draw down on superannuation, dealer finance, and broker finance. But how do you make the right decision or, more importantly, what’s the right decision for you?
Let’s run through the pros and cons of each...
Buying a caravan, camper trailer, or motorhome with cash allows you to buy exactly what you want, when you want, but you’ll also likely wipe out your ‘rainy day fund’, potentially removing the opportunity for other investments, holidays or retirement spending.
Redrawing on a mortgage with a low headline interest rate can provide an ability to make extra payments but also could add years to your home loan, leading to significantly higher interest payments over the long term.
A personal loan option (bank loan) may be a great way to purchase a second-hand or private sale van, however, as these product loans are generally unsecured, they may attract a higher interest rate than specialist caravan loans.
When drawing down on superannuation, you need to consider the overall relative performance of your super fund and whether the capital left untouched for a further period of time would result in a higher capital amount and larger superannuation nest egg. You don’t pay any interest and you have the certainty of buying power, but you have to consider the opportunity cost of not having the money invested.
Some larger caravan dealerships have a full-time finance manager onsite who can help arrange ‘on the spot’ finance and fast approvals. But the inherent issues are limited choice of financiers and a loss of bargaining power with the dealer.
Specialist caravan finance brokers can arrange the same quick and convenient approval that a dealer can, but also with a wider choice of lenders to choose from and usually cheaper rates than personal loans.
However, interest rates can vary significantly between lenders and may be influenced by age of the RV. Some lenders prefer RVs that are no older than three years, which may affect what you can buy, and other factors such as time in job or address will affect your ability to borrow. Also, some brokers may charge a small fee to cover their costs although is generally offset by interest rate savings.
THINGS TO CONSIDER
Credit One is a specialist caravan finance broker based in Queensland, and general manager Jarred Lembo says there are some handy hints for securing the best caravan finance deal if that’s the path you choose to go down.
“Always put your head before your heart,” Lembo said. “It’s easy to get swept up in the heat of the moment at a caravan show and sign on the dotted line for something that’s a little out of your reach.”
Having a predetermined budget or allowing your broker to help calculate your budget based on all your living expenses is also a good exercise.
Like you’d do with a home loan, make sure you compare all available options on loan term, interest rate and any early termination or other fees. And pre-approval is another important step.
“We can also arrange no obligation, free pre-approval before you shop – giving you the confidence to negotiate with a private seller or dealer knowing that you have a pre-approved limit,” Lembo said.
Caravan-specific loans can offer flexible repayment structures over 2-7 years terms, so you know, upfront, how long it’ll take you to pay off.
“Whilst adding a caravan purchase to your home loan might seem like a good idea it can add years to the loan term and mean that you will pay much more interest than if you had secured a low rate caravan loan secured only against the van. The advantage of securing only the caravan is that the loan generally will run for a predetermined term rather than being ‘tacked’ on to your home loan that could effectively extend your home loan for another 10 years or longer.”
In some cases, you can even borrow more than the caravan is worth, allowing you to factor in the cost of accessories, insurance and registration of the caravan.
The full feature appeared in Caravan World #567. Subscribe today for the latest caravan reviews and news every month!