Financing a caravan can be confusing, especially if you are new to the game. With so many different finance deals available, it is important to understand what each one entails before making your choice.
Caravans are usually bought for leisure or recreational purposes and there are a few main ways of financing them.
What do you need the caravan for?
The first thing you should do is make a list of all the features that you need your caravan to have, vs the features you want it to have, but ultimately could live without. For instance, if you are planning to go on the road frequently, it may be worth looking for a caravan with all-wheel drive. If you are more interested in family holidays than camping trips, look at caravans that have built-in microwaves and TVs. When making your list of must-haves and nice-to-haves, make sure to consider the type of finance deal you wish to go for.
Are you looking for personal or business finance?
The second thing you should do is decide if you are looking for personal or business caravan finance; though there are also deals that can be used for both. With personal schemes, your caravan will be linked to your name and you will be responsible for it in the event of any problems or faults. This means that you have a lot more freedom over your caravan and you can use it without being accompanied by a business representative, but this also means increased responsibility.
The main ways to finance a caravan
Cash
This is the most straightforward way of buying a caravan. You simply buy the caravan, then sell your old one. This means you can take advantage of any price depreciation to get it cheaper than if you bought new. But this will leave no equity to fund further purchases in the future.
Lease purchase
Under this scheme, you pay off the cost of the caravan, interest-free, over a period of time e.g. 24 months. Once this is done you have the option to buy it by paying an agreed sum or simply hand it back if you do not want to keep it.
Car finance
This is where the caravan dealer arranges to lease your caravan for you through one of the finance lenders, usually at an interest rate that is higher than if you were to arrange it yourself. You then pay off the loan through monthly payments
The costs involved with financing and owning a caravan
Interest
This is the price you pay for borrowing money and it is calculated as a percentage of the finance amount. You can choose between fixed or variable interest rates, with the latter being riskier but potentially offering more flexibility.
Lender fees
These may include things like admin fees, application fees, and early exit fees.
Registration and insurance
In order to legally drive a caravan, you’ll need to take out insurance and ensure that your caravan is registered. These costs for registering and insuring a caravan vary depending on the type of caravan and its age, as well as which state or territory you live in.
Petrol and servicing
Caravans require more petrol than a normal car and they also need to be serviced and checked for wear and tear. This will help reduce the likelihood of breakdowns, but it will still cost you money in time and repairs.
