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Guide to financing your motorhome purchase

MMM editorial
rhp_Old couple with savings.jpg

Do you dig into savings that aren't earning you very much anyway to pay for your new motorhome? Do you opt for a loan? Maybe free up equity elsewhere? Motorhomes are a big investment, so here we take a look at how you can finance your next dream on wheels.

A big ticket item is always an investment and, other than your house you're unlikely to purchase a bigger ticket item than a motorhome.


Other than your house, you're unlikely to buy anything
more expensive than a motorhome




The good news is that prices of new motorhomes are competitive, especially as the current sterling/euro exchange rate is in buyers' favour as it is making imported motorhomes less costly than in previous years. Of course, this situation may not last so, if you are planning to buy a motorhome built on the Continent, check with your dealer that the price you agree now is the price you will pay when it is delivered, regardless of what happens to the exchange rate in the meantime.

Unlike the new car market, where more than half of buyers take dealer finance to fund their purchase, most motorhomes are bought for cash. In a recent MMM survey, 71 per cent of buyers said that’s what they planned on doing when they bought their next (or first) motorhome.

Once you have bought a new motorhome, the cost of replacing it with a newer model is not as big a financial hit as you might imagine, as motorhomes tend to hold their value extremely well, especially when compared to cars.

Options for finance

Personal loan

There are of course a variety of personal loan options; what differs are the interest rates you will pay, who you're paying it to and how long for. With a personal loan you become cash rich for a short period in order to buy the 'van for cash then pay back the independent lender.

The big banks are worth considering as they have plenty of customers and can offer good rates. When this article was being written, we found the cost of borrowing £20,000 over three years from the Alliance and Leicester would cost £2,469. This is at an APR of 8.0 per cent, meaning a total repayment of £22,469 via monthly payments of £624.15. On the other hand RBS' annual percentage rate was 13.8 per cent, meaning monthly payments of £673.85 and a total bill of £24,295.

So it is always worth shopping around first and remember that percentage repayment rates are always changing, so secure your loan before committing.

Try comparing lenders through aggregator websites such as Compare the Market or Money Supermarket, but bear in mind that not all companies will be listed. Try your bank, it may have special rates for account holders.


Hire purchase

Another alternative is financing with a hire purchase agreement. Dealers will offer this, and around 10 to 20 per cent of motorhome buyers take it up. Black Horse Finance is the dominant force in this sector.

Think of hire purchase like a mortgage - you don't own your motorhome until the final payment, which tends to average out at between five and seven years. If you default on an installment though, the finance company is within its rights to repossess the motorhome.

Key considerations if planning to use hire purchase are:
  • the size of any deposit required
  • length of the repayment term
  • size of installments
  • the total costs of what you're paying.
  • the APR may have been set by the dealer, so that could influence where you buy.
Remember: the monthly payments are in addition to the cost of owning and running a motorhome. Don't neglect to consider the inescapable costs such as insurance, road tax, fuel, maintenance and campsite fees, as well as non-mandatory ones like breakdown cover and accessories.

Savings

The age demographic of people buying a motorhome – they are generally retired or semi-retired – means that often buyers will have savings or a lump sum from a pension with which to buy a motorhome.

The obvious benefits with using cash to buy a new motorhome are that you own it from the outset, you avoid have to pay any expensive interest on a loan and you do not have to worry about having to keep up with re-payments.

The downside is that all that money will be gone in an instant, although on something that won't depreciate as quickly as for instance, a car, which means many consider it an investment that can eventually be cashed in.

Equity release

Equity release is popular with some buyers, the most popular method being a lifetime mortgage, where you take out a loan secured on your property. There are no repayments and the amount plus interest is only paid back when the scheme ends, whether that be by the sale of the property or on the death of the policy holder.

In 2009, over £800 million was made available through equity release in the UK alone, testament to the popularity of the method at that time. It does however obviously reduce the value of your estate.

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