Many of the questions we’re often asked here at Derby Motorhomes are about the financing options for buying a motorhome.
With the strict proviso that we are in no way qualified financial advisers, we’re happy to share with you some of our observations on the subject of motorhome finance. Our aim is simply to highlight – in the broadest possible terms – some of the options that you may be able to choose from when buying a new motorhome.
Using your own cash
A lot of buyers use their own cash – especially in circumstances where they have taken a lump sum out of a pension fund, have inherited money from a relative’s estate, or come into a similar windfall.
In many respects, paying by cash is intuitively attractive. It means you won’t be paying interest charges to a lender, and neither will you need to convince someone else that you can afford the money you are spending. It is your decision and yours alone.
However, you may need to keep in mind that some advisers might argue that spending your own cash is not always an optimum solution. If you spend a substantial sum of money on your motorhome from your own cash reserves, then by definition, that money isn’t available for you to use for other purchases.
True, you could always sell your motorhome in future to get a percentage of your cash back but that can take a little time and while you’re going through the sales process, your funds aren’t available to you.
You are almost certain to be familiar enough with the concept of Hire Purchase (HP) that it needs no further explanation.
In brief outline, suffice it to say, that all is required from you is to find a sum of your own cash to contribute towards the cost of the vehicle by way of a “deposit”. The Hire Purchase provider will then fund the balance and purchase the vehicle for you to use as its registered keeper.
You will then pay a monthly repayment of the outstanding sum, over some years, until such time as you have paid off the balance. During that period of time, the vehicle legally remains the property of the HP provider and you must not sell it without their advance written permission.
The advantage of HP is that the vehicle is being purchased, in large part, with somebody else’s money, meaning you keep your capital reserves for something like an emergency. Of course, you will need to show – by way of relevant credit checks – that you are financially able to maintain the repayments.
You could go to a finance company or bank and ask them to advance you a sum of money which you can then spend on buying the new motorhome of your choice.
You will then need to repay the loan, of course, over an agreed period of time or term.
Once again, you will need to find some form of deposit. You will also again typically be assessed in terms of your creditworthiness and ability to financially meet the loan repayment commitment you are entering into.
Loans offer the advantage of giving you a degree of freedom over where you purchase your vehicle, and they may increase your negotiating position a little with a seller or dealership (as to them you will effectively be a cash buyer).
On the downside, certainly, bank loans are perhaps not always as readily available for luxury or non-essential expenditure as might once have been the case.
Personal Contract Purchase (PCP)
In recent years, the market in motor sales has been dominated by personal contract purchase (PCP) arrangements. Inevitably, perhaps, this financing option is widely gaining ground for the purchase of motorhomes.
One of the attractions of the PCP is that you visit the dealer or franchise holder, choose your motorhome, put down a deposit, agree the monthly repayment schedule, sign the papers, and drive away in your new motorhome.
It might seem similar to HP but differs in crucial respects.
Your monthly repayments are reduced and rolled over until the final “balloon” payment, which you can pay so that the vehicle becomes yours outright.
Alternatively, you can hand back the motorhome, with nothing further to pay. But if you have built up an equity in the vehicle – because it has maintained its value better than expected, for instance – you can arrange its sale and put down the released equity as a deposit on the purchase of a new motorhome.
At Derby Motorhomes we work with a number of motorhome finance specialists to find you what we consider is the most suitable finance solution for your next motorhome. Why not contact us today to see how we can help?