Lured by a new caravan purchase but don't know if you can afford it?
Researching caravan finance options is a crucial piece of the puzzle when buying a new caravan. New caravans can be a big investment, ranging anywhere from $15,000 to $150,000, and people generally spend a lot of time researching their caravan options before they buy – whether to buy a new versus an old caravan, looking online, visiting dealerships, checking caravan insurance options, picturing themselves in it – sometimes forgetting that the big thing that stands in their way is knowing how they can finance it. Quite a big hurdle, when you think about it, and often the least researched part of the process.
And yet you don’t have to clean out your savings or abandon the idea entirely simply because it seems like an insurmountable mountain to climb. Making your dreams of caravan ownership a reality can simply be a case of getting good financial advice and doing some creative shuffling with different financing options beyond caravan loans, which means exploring personal loans and home equity arrangements, in a way that is sustainable and achievable.
Assess your personal finances
To explore these options the first thing you need to do is assess your financial position and see if it is viable. Things you need to examine, include:
- How much do you want to borrow? This will come down to how much you can afford. Work out your expenses and the difference between how much you are getting paid and how much is left over. This will give you a good ballpark figure of the potential weekly repayments you can make for a loan. Knowing this will also help determine the budget range you should be looking for in a caravan.
- Will you make a good potential borrower? A stable, ongoing income, good credit rating and a strong savings track record obviously goes a long way when applying for a loan. Talking to a broker or financial advisor is also a good idea. They can look at your circumstances and give you unqualified advice on credit options you should and shouldn’t pursue. An online loan calculator is also a great tool to help you calculate weekly repayments and the difference between competing loans.
- Which lender matches your needs? Go through a reputable lender and ask for the best deal when applying for a loan. It’s a competitive market and always worthwhile seeing if they can match the terms of other loans or shift in any way to suit your personal situation and repayment needs. Compare loans as much as possible to find the right deal for you. Make sure you also check out things like ongoing bank fees, admin fees and early payment penalty fees, which can also add up in a loan.
After assessing your personal finances, you can then look into the different finance options available for purchasing caravans.
Personal 'lifestyle' loans
A caravan loan is a loan specifically for the purchase of caravans. When you go to a caravan finance lender they will want to know things like:
- What’s your financial status? Your income, the status of your loan, repayments etc. that will influence their decision.
- Do you have an invoice? Lenders will want to know the make, model, condition and price of the caravan to be able to judge whether they can approve a loan for your caravan of choice.
- Are you buying through a licensed dealer or privately? Either option is possible, however, the personal background of the seller is a factor that can influence the reliability of the caravan you’re purchasing and needs to be considered.
- Is your caravan for travel purposes or to live in permanently? Lenders can only approve loans on caravans that are used for leisure and not as permanent accommodation.
With this information lenders will be able to determine your loan type and repayment timeframe. It's also a good idea to talk to a loan specialist, financial planner and/or use an online loan comparison tool so you can get an idea of which loan will offer you the best terms and conditions.
TERMS OF A CARAVAN LOAN
Many loans are for 5 years, however, given that caravans hold value for longer, some lenders offer extended loan terms for up to 7 years. Keep in mind, the longer your loan is the more you will have to pay in the long run, so try and find a deal you can pay off faster to get the best out of the loan.
Using your home equity
As you pay off your loan and the value of your home increases you may be also be able to use the equity of your home to purchase a caravan.
The equity of your home is the difference between the value of your home and how much you still owe on your home loan. This equity can then be used to improve aspects of your lifestyle, such as buying your ultimate caravan.
HOW IT WORKS
To consider this option you will need to have paid down a proportion of your home loan and can show your property has increased in value.
To find this out, you will need to get a property valuation and with this negotiate new terms and conditions with your lender. As well as the value of your home, other factors that will determine whether you can borrow more to access the equity in your home include things like your income, living expenses, credit rating and how much you still owe on your current loan.
Adding value to your house is a good way to access the equity of your home faster. Ways you can increase the value of your home include:
- renovation and general house and garden improvement
- reducing your loan balance through regular or larger repayments
- opening an interest offset account to reduce interest paid on your loan
- discussing other credit options with your lender to access your equity
There are just a few considerations and it’s worthwhile talking to a financial adviser or broker to find out which strategy works the best for you.
HOW THE EQUITY IS ACCESSED
Accessing equity can be done through withdrawing extra repayments under a redraw facility or topping up your loan. Caravan customer’s over 65 who own their own homes can also consider reverse mortgages, where they can withdraw payments on a home loan either in a lump sum or over a period of time.
Accessing the equity on your home or considering a reverse mortgage needs to be done carefully and with full consideration of your repayment capabilities. Accessing home equity will come with higher interest rates and monthly repayments. There may also be restrictions on the type of home loan that you have, which may affect how you can access your equity or make repayments on your home.
Negotiating a good deal
In any of these decisions, you first need to understand your finances and be secure in the knowledge you can afford the purchase, manage the repayments, and that it won’t impact your lifestyle or financial security.
Looking at caravans, checking out dealerships, browsing online and talking to other caravan owners is a great and worthwhile thing to do. Exploring financing options is also an important part of this process and needs to be done ahead of time so when you find that perfect caravan you can not only buy it but can afford to buy it.
The up-side of all of this as well is that with approved financing in your back pocket you’ll also be in a better position to negotiate a better deal from a caravan vendor.
Now that’s an ideal situation!
Understand the finances but need to know more about caravans? Download our free guide to buying the ultimate caravan in 2016, and become an expert in what to look out for when buying a new or used caravan.