It’s likely to be a simple financial fact of life. Statistically speaking, a motorhome is likely to be the second most expensive purchase – after your home – you’ll ever make.
Put even more simply, if you are looking to buy a motorhome, you will want to give its funding – your finance options – some especially careful thought. And that is a subject on which, here at Derby Motorhomes, we can help.
So, let’s take a look at some of the major and most common sources of motorhome finance chosen by many purchasers.
That’s the money you have to hand in your bank account, of course. You might be fortunate enough to have an instant access savings account, for instance, which can let you pay for your motorhome in a single transaction, paying by electronic transfer or money order.
In these days of relatively straitened financial circumstances, of course, savings might be few and far between – but perhaps you have been the beneficiary of a windfall through someone’s will or maybe you have just drawn down a pension lump sum.
Pros: Easy, simple, and straight forward. There are no interest costs or related charges. Neither are there going to be any credit score issues if that is an area in which you might be challenged. The vehicle becomes yours immediately after you have handed over the cash.
Cons: Depending on your overall financial circumstances, using “spare” cash to fund the purchase of a motorhome may not necessarily always be the most appropriate use of your liquid capital. Your cash is immediately gone and isn’t available for other emergency uses.
In a sense, this is a variation on cash. It differs only in how long it takes you to release the equity and to some extent, how you do so.
Essentially, equity release involves getting hold of liquid capital you might currently have tied up in other things, then using that to purchase your motorhome.
For example, if you take out a loan based upon the equity you have in your property (equity there is defined as the difference between your property’s realistic market value and any remaining mortgage you might have on it).
Pros: once again, the funds released through such an arrangement make you effectively a cash buyer for your motorhome. Unsurprisingly, therefore, equity release can be a very cost-effective way of accessing capital
Cons: it can take a little time, involve some form-filling, and legal documents to be drafted as you try to free up your equity. Borrowing against equity is still borrowing, so you need to look closely at interest rates as per normal. It will invariably involve reference to your credit status and score. If you’re borrowing against the equity in your home, remember that your home might be at risk if you fail to keep up the repayments.
Hire Purchase (HP)
For most of us, this is a thoroughly familiar form of finance.
It works very simply. If your application is approved, the lending company will purchase the vehicle and give you permission to keep and use it as the legally recognised “registered keeper”.
After paying a deposit – typically, around 10% of the purchase price – you’ll then repay the balance over a specified period of time, but the vehicle becomes legally yours only after you have made the final repayment. During the term of the agreement, the vehicle is NOT legally yours and you must not sell it without the HP provider’s advance permission (to do so would be a criminal offence).
Pros: a thoroughly familiar form of funding. It can be more cost-effective than paying in cash, depending upon your particular overall financial circumstances. Decisions may be reached fairly quickly once your application is made.
Cons: your motorhome may be legally seized if you default on the repayments – that is, you fail to maintain the repayments in accordance with the agreed schedule. You will typically need to meet certain minimum credit risk scoring criteria.
Conventional bank loans have been around for a long time, of course, so the ins and outs of borrowing from your bank are probably well understood.
Pros: it’s likely to be a familiar arrangement. It is likely to be most convenient for those with an established relationship with their bank.
Cons: some banks may be reluctant to lend larger sums for what they will consider to be luxury items. Decisions can be slow and credit scoring is likely to be involved.
Although we have mentioned credit scoring above, please don’t assume that you need a perfect credit score in order to obtain finance! We are authorised by the Financial Conduct Authority (FCA) to advise on motorhome financing options and stand ready to help you with motorhome finance even if you have a less than perfect credit history.
Why not call us for a further discussion?