For many of even the most enthusiastic first-time buyers of motorhomes, the question of financing can be baffling.
In what follows, we’ll be exploring some of the major channels for buying a motorhome. Do please remember though that your financial position will be unique to you and no general article of this nature can offer specific advice.
Some of the generalities below might NOT apply to you. This is not a substitute for a discussion with an expert provider of such finance face-to-face or on the phone.
Dipping into your savings
There’s nothing wrong with using cash in the bank for motorhome financing. Perhaps in the form of savings or a pension lump sum – it doesn’t matter. It’s effectively cash.
The big advantage of using cash is that you’re not beholden to anybody for getting hold of it. No applications and credit history checks etc. All other things being equal, it’s also perhaps the most cost-effective way to purchase a motorhome because there will be no interest to pay.
However, this isn’t always the apparent “no-brainer” it seems. For example, if you are currently servicing another debt at a higher interest rate than one available to you for motorhome financing, then it might be more sensible to use your cash to pay that other more expensive debt off and use the lower cost one for the motorhome.
Don’t forget also that once you’ve spent your cash, it’s gone. It’s not there to cope with emergencies.
Hire Purchase (HP)
Almost everyone in the UK will be familiar with the principles of HP.
You find a percentage of the purchase price (usually around 10% or so) and apply to an HP provider for the balance. If they agree, they’ll purchase the vehicle and legally own it but you’ll be able to use it as the registered keeper. You’ll make a monthly repayment over an agreed term.
That will continue until such time as you’ve made the final payment. At that stage, the motorhome becomes yours.
The big plus of this approach is that it’s often fast and easy to set up.
The downsides are few and only relate to what might happen if you get into financial trouble. For example, the motorhome might be seized if you fail to maintain your repayments. You will also typically need to meet certain minimum credit scoring requirements.
Little explanation is required here, as people have been doing this for centuries!
The big positive here is familiarity. In theory, you know your bank and they know you, though that is becoming less the norm today. It’s an easy process conceptually.
The negatives are unfortunately there too. Since 2008 and the resulting crises, the banks have been far more reluctant to lend money than previously and their acceptance criteria may be high. It’s also possibly the case that they’ll see this as a luxury rather than an everyday lifestyle loan and that might not help.
A bank loan review can also be a rather slow process. It’s also worth noting that their deposit requirements (your percentage contribution) may be fairly high too.
You may have the option of freeing up equity (essentially profit) that you might have in your home by borrowing against it. It’s a viable option for motorhome financing.
A big plus here is the possibly very attractive lending rates due to the relatively low risk associated for the lenders.
A possible negative is that any loan you secure on your property (or any other asset) may result in the asset being seized if you’re unable to maintain repayments.