What are my options for a caravan loan?
There are three main types of loan you can use to buy your caravan: a secured loan, a personal loan, or a drawdown on your mortgage. As you would expect, they each have advantages and drawbacks, so it’s important to consider your options carefully.
Option 1: Secured caravan loan
For a lender, deciding whether or not to offer you a loan is all about risk. How likely are you to pay back the money you borrowed? What can they do if you don’t?
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That’s why they’ll assess your application to decide whether to offer you a loan. There are many things they’ll look at, and security is just one of those.
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Offering security will not be enough to get you a loan if the lender doesn’t believe you have the capacity to repay it. Here’s why.
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Security takes away some of the risk for the lender. If you don’t pay back your caravan loan, they can take (‘repossess’) your caravan instead and sell it at auction to recoup their money. It’s a safety net to make sure they don’t lose everything – but it’s far from ideal for them. After all, if they wanted to own caravans, they’d buy them themselves instead of lending you the money for yours! Getting the caravan from you, storing it, and then selling it at auction is a lot of hassle – and unlikely to get them back all the money they put in.
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Having said that, offering your new caravan, motorhome, or RV as security can still help you get a loan – especially from lenders who specialise in vehicle finance – and it may make a difference when it comes to the interest rate you’ll be quoted.
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A vehicle lender will usually be able to approve your secured caravan loan application very quickly, as they have the expertise to assess the value of the caravan or motorhome you want to buy, as well as your capacity to service the loan.
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Pros
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Usually easy to access, especially if you’re buying a brand-new caravan from a dealer who has an arrangement with a finance provider. Just like when buying a car, the dealer may take care of the process for you and your application will usually be assessed very quickly (but remember you’re a captive audience so you may not get as good a deal as if you shop around).
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Lower risk usually means lower price, so a secured caravan loan will often be cheaper than an unsecured personal loan.
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The amount of the loan will be tied directly to the cost of the caravan, RV, or motorhome, so won’t end up borrowing (and repaying) more than you need to.
Cons
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Your lender may have extra conditions that you’ll have to comply with – such as always keeping your caravan insured, or only using it for personal use and not for business. It’s important to check what their requirements are to be sure you’ll be allowed to use your RV in the way you plan.
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If you default on your loan (don’t keep up your repayments) the lender can take your caravan and sell it at auction. If that doesn’t cover the rest of what you owe them (plus the costs they add for repossessing and selling your motor home), you’ll have no beautiful RV and STILL owe them money.
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It can be more complicated selling your caravan later if you’ve used it as security for a loan. You’ll have to get the lender involved, which can slow down the process – and you may even have to pay fees for paying out your caravan loan early.
Option 2: Personal loan
Getting a personal loan to buy a caravan is the same as getting one for any other reason. Since you’re not offering security, you can usually expect to pay more than for a secured loan – but costs and rates can vary widely so be sure to shop around.
As with a secured caravan loan, the lender will look at your financial situation and your credit history before deciding whether or not to offer you a personal loan. Even if you don’t have the greatest credit record, you may still be able to find a lender willing to work with you – provided you’re willing to pay a higher interest rate to compensate them for the extra risk.
If you’re buying a second-hand caravan, campervan or motorhome, a personal loan may be an easy option. Since you’re not using the caravan as security, the lender won’t need to have an accurate valuation of the RV (the amount of the loan isn’t tied directly to the value of the vehicle). That means you can get your caravan loan in place before you go looking for the perfect RV – and then swoop in with an offer the moment you find your dream vehicle.
Pros
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There’s a HUGE number of personal loan providers to choose from, including some who may work with you if you have a poor credit history (as long as you can still prove you have the capacity to repay your loan). You can shop around and find the most favourable loan to suit your circumstances.
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Applying for a personal loan is usually quick and easy, and you can often get a response within hours (or even minutes!). You can ask to borrow the amount you think you’ll need to get your caravan or motorhome out on the road, not just the purchase price, which could be really helpful if you’re buying a second-hand recreational vehicle that needs a bit of love.
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The caravan or camper is yours once you buy it, so you’re free to use and dispose of it as you want (and the lender can’t take possession of it if you default). Depending on the terms of the loan, you may be able to pay it back early, without penalty, if you do decide to sell your caravan.
Cons
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A personal loan is higher risk for the lender than a secured loan, so you can usually expect to pay more in interest, especially if your credit record isn’t great.
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Not all personal loans are the same, even if the interest rates look comparable. If you’re not careful you can get hit with extra charges or sneaky terms and conditions, so it’s crucial that you compare the FULL cost of the loan, and that you understand exactly what you’re signing up for.
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When you take out a secured loan, especially through a vehicle finance specialist, the lender will generally assess the value of the vehicle before agreeing to the loan. With a personal loan, it’s entirely up to you to check that you’re paying a reasonable price. If you get ripped off by the caravan seller, you’ll still have to repay the full amount of your personal loan.
Option 3: Add the loan to your mortgage
If you own a house and are already paying a mortgage, you may be able to borrow extra money to buy your caravan or RV and add it to your mortgage loan. Since your lender already has all the information they need about you, this can be a reasonably easy process – as long as your circumstances haven’t changed since you first took out the mortgage.
If you’ve been making extra payments toward your mortgage, some mortgage loans will even allow you to take back (‘drawn down’) any extra money you’ve paid without having to worry about applications.
This can seem like an ideal solution, especially as mortgage interest rates are usually lower than any other kind of loan. BUT there is a massive pitfall here. Mortgages are extremely long-term – and the longer you borrow for, the more interest you’ll pay in total over the many, many years you’re paying it back.
So if you decide to add the cost of your new camper to your mortgage, it’s likely that you’ll end up paying far more for your loan than if you took out a secured caravan loan or personal loan.
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Pros
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Since you’ll be paying back your loan over the full life of your mortgage, your repayment instalments are likely to be significantly lower than for a secured caravan loan (which will be tied to the expected lifespan of your caravan) or a personal loan (which usually have a term of 3 – 5 years). This can make it the most affordable option (but not the cheapest by the time you’ve repaid it all!)
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It keeps things simple. You’re already paying a monthly instalment on your mortgage – by adding your caravan loan to that, you’ll be making a single (but larger) regular payment, rather than juggling different loans and lenders.
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As with a personal loan, using your mortgage to buy a caravan or motorhome means that the lender does not have control over what you do it. You can use it however you like, sell it when you want to, and use the proceeds in any way you like.
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Cons
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This is potentially the most expensive option, even if the interest rate looks a lot cheaper. Over time, you’ll pay interest again and again (and interest on the interest) – so you could still be paying for your camper long after you’ve stopped using it. And the rate of interest you pay on your mortgage will change over time, depending on economic circumstances. So you actually have no idea when you add the caravan loan to your mortgage how much interest you’ll end up paying in the future.
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A mortgage is secured on your home. That means that if something goes wrong, you could lose your home, which is likely to be a lot bigger loss than your camper trailer. If you ever want the peace of mind of owning your home outright, you’ll need to be paying off your mortgage as quickly as possible, not adding to it!
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Depending on the type of mortgage you have, you may not be able to make early repayments without getting hit with extra fees. So even if you sell your camper after a few years, you could still be paying interest on it for decades.
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If you’re in any doubt about which type of loan is right for you, we strongly recommend you get independent financial advice.