Owning a caravan allows you to enjoy outdoor adventures at your own pace, and with the comfort and convenience of having a 'home' on the road. You can take the family on a weekend road trip or embark on a month-long outback adventure not worrying about accommodations.
However, caravans can be an expensive purchase. Cosy budget pop-tops usually start at $10,000 while fully-equipped luxury campervans can cost anywhere north of $500,000. But it doesn't mean you have to drain your life savings to hitch up your dreams to a home-on-wheels. You can find several financing options to fund your caravan.
Here's everything you need to know about caravan loans.
What is a caravan loan?
A caravan loan is a type of financing that allows borrowers to fund the purchase of a caravan and other types of recreational vehicles. Much like other loans, you will be provided with a lump sum by the lender and charged interest on your debt repayments over the set loan term.
Borrowers can choose between fixed rates, so monthly repayments stay the same over the loan term, or variable rates, which may fluctuate but tend to be lower. Caravan loan terms typically range between one and seven years.
Types of caravan loans
Financing a caravan can be approached in several ways, each with its own drawbacks and benefits.
Specialised caravan financing
Some lenders offer loans specifically designed for financing caravans. That said, the disbursed amount is only limited to the purchase of caravans, not other types of vehicles or purposes. Other types of recreational and travel vehicles may be allowed.
Depending on the lender, you may be required to use the caravan as collateral. Credit providers may also offer lower interest rates and more favourable terms, such as longer repayment periods that reflect the higher cost of caravans.
Secured personal loan
A secured personal loan uses the caravan as collateral, meaning the lender can repossess the caravan if you fail to meet your repayments. However, because the loan is secured, you can typically obtain lower interest rates and potentially higher borrowing limits.
Lenders may be willing to lend larger amounts since the loan is backed by an asset. This can be beneficial if you're purchasing an expensive caravan.
Unsecured personal loan
An unsecured personal loan does not require any collateral, but it may have stricter eligibility criteria. Lenders often require a higher credit score and proof of stable income before granting approval. Borrowers with poor credit may find it harder to get approved or may face higher interest rates.
Even with a good credit score though, you are likely to still encounter higher interest rates and lower borrowing limits with unsecured loans since they pose a greater risk to the lender.
Financing a less expensive or older caravan thus could make more sense with this type of loan. Unsecured financing typically has fewer restrictions on what you can purchase with the loaned amount.
What vehicles can I buy with a caravan loan?
Depending on the lender, you may be able to use a caravan loan to finance not just a caravan but also a variety of other recreational and travel vehicles.
1. Full caravans
This traditional caravan features a solid construction (full-height roof and solid walls) and amenities such as sleeping areas, a well-equipped kitchen, and a separate toilet and bathroom. It's fully set up and ready to go, ideal for families and long-term travellers.
2. Pop-top or pop-out caravans
This compact caravan has a roof that can be raised or lowered and sections that 'pop out' upwards and sideways, making it easier to tow and store. Pop-top caravans are typically smaller and lighter than full-sized ones, leading to lower fuel costs but also reduced living space. They may also be cheaper to finance.
3. Motorhomes
Also called an RV (recreational vehicle), a motorhome is essentially a caravan that doubles as a vehicle. It is built on a truck or a bus chassis, with living quarters integrated into the vehicle.
Motorhomes can range from affordable to very expensive, depending on the size, features, and model. It is also capable of being self-sufficient with built-in utilities and storage, ideal for comfortable and convenient travel.
4. Campervan
Similar to motorhomes, campervans are built on a van chassis and combine transportation and accommodation into one unit. But unlike motorhomes, campervans are more compact and thus easier to drive and park. These are typically equipped with utilities such as water supply, electricity, and heating and cooling systems.
5. Camper trailers
Compact and lightweight, a camper trailer or camping trailer is a towable caravan designed with living quarters and basic amenities. It usually comes in a range of sizes and styles, from small, lightweight models to luxurious trailers, making them a versatile option for camping and road trips.
Comparing Caravan Loans
Not all caravan financing is created equal, so don't rush into the first product you see. Here are the key factors to consider when shopping for the best caravan loan deal.
Loan types
The first thing to consider when comparing caravan financing is choosing whether to secure the loan with the caravan or go the unsecured route that doesn't require collateral. You are likely to obtain lower rates with secured loans, while unsecured loans may suit you better if you have a less-than-ideal credit score or are buying a much older caravan.
Lenders may also be more flexible in the types of caravan you can purchase with secured loans, although they may have specific requirements regarding age and condition.
Interest rates
When comparing caravan loans, look for the lowest rate you're eligible for. Note that caravan loans typically feature a range of interest rates, with your actual rate determined by your income, creditworthiness, and overall financial situation. If you have a low credit score, you will likely be offered a rate much higher than the one advertised by the lender, as many have a tiered interest rate system.
Applying for pre-approval can give you a good idea of the rate you might receive. This gives you the confidence to go out shopping for a caravan with a budget in mind. Lenders, however, are not obligated to give the estimated rate once your loan is unconditionally approved.
Loan terms
This determines the length of time over which you will repay the money you borrowed. For caravan loans, this typically ranges from one to seven years or more. A shorter loan term results in higher repayments but lower overall interest costs, making it suitable for borrowers who wish to pay off their debt early and save on interest.
Loan features
Some lenders offer competitive features designed to make repayments and overall loan management more convenient.
Extra repayments - Being allowed to make additional repayments without penalty can help you pay off the loan early and reduce interest charges.
Redraw facility - This feature lets you access those extra repayments you made when the need arises.
Repayment schedule - Options to align your repayments (i.e. weekly, fortnightly, or monthly) with your income schedule can make budgeting easier.
Balloon payments - Also called a residual, this feature lets you make a large, lump sum payment at the end of the loan term so that your initial monthly repayments are smaller. A downside is that more interest is ultimately payable as a portion of the loan is not paid off until much later, and it can be easily forgotten about, leading to a big surprise at the end of the loan term.
Fees and other charges
Factor in the additional fees that may be included in your caravan loan. Depending on the lender and product, these may include upfront fees, ongoing charges, and break costs for early repayment. Extra features can also make servicing the loan more expensive.
The comparison rate is a good indicator of the true cost of the loan. Generally, if the comparison rate is much higher than the advertised rate, you'll be paying multiple fees and other charges.
How much can I borrow for a caravan?
The amount of caravan loans in Australia can vary widely, ranging from $5,000 to $200,000 or more. However, the specific amount you can be approved for will depend on various factors, including your income and credit score. The type of caravan you're borrowing for may also influence the loan amount.
Each lender has its own criteria, including minimum and maximum loan amounts. If you intend to purchase a new luxury caravan, you'll likely require a larger principal. Nevertheless, even if you qualify for a high loan amount, you should only borrow what you can comfortably afford to pay.
Use the InfoChoice Personal Loan Calculator to work out how much your regular repayments will be on your caravan loan.
How to apply for a caravan loan
Applying for a caravan loan involves a few steps that help ensure you secure the best possible financing for your purchase. Here's how.
1. Compare lenders
Research and compare different lenders and loan products to find the best interest rates you're eligible for, features that meet your needs, and terms and conditions that suit your financial situation. Consider both banks and non-bank lenders in your search.
Utilise comparison websites with regularly updated databases and tools to simplify this process.
2. Prepare your documents
Gather necessary documents such as proof of identity (driver's licence, passport), recent payslips (or tax returns if you're self-employed), bank statements, and details of any existing debts you have. This can help streamline the application process and save you time down the track.
3. Get pre-approval
Apply for pre-approval from your chosen lender to get an estimate of the loan amount and interest rate you might qualify for. This way, you'll have a clear budget to work with when shopping for a caravan. Obtaining pre-approval can also make you a more attractive buyer to sellers.
4. Shop for your caravan
With pre-approval in hand, start shopping for your ideal caravan. Visit dealerships and private sellers and test different models to find the best fit for your needs. Consider factors such as size, features, and condition (new or used), and whether these align with the terms of your pre-approved loan. Ensure that the caravan fits within your pre-approved budget.
5. Provide your lender with caravan details
If you're using the caravan as security for the loan, you need to provide the lender details of the asset to complete the final assessment of your application. This typically includes the make, model, purchase price, and seller information. The lender may also require a valuation or inspection of the caravan. You may also need to provide proof that the caravan is insured.
6. Schedule your caravan adventure
Now it's time to hit the open road! After the lender finalises the loan and disburses the funds (either to you or directly to the seller), you can complete the purchase of the caravan. Ensure your caravan is insured and registered before going off on an adventure.
Frequently asked questions about caravan loans
HOME ON WHEELS. Some lenders may allow the purchase of campervans or motorhomes using a caravan loan.
Can a pensioner get a loan for a caravan?
Yes, pensioners or retirees can get caravan loans, though the process may involve additional considerations. Essentially, lenders need to verify that you have a stable income to support the loan repayments for the caravan you're after. For pensioners, assessable income can include Aged Pension and superannuation payments.
Pensioners might also consider secured loans, where the caravan itself is used as collateral, to help increase their chances of getting approved. You may also seek lenders offering loans specifically designed for caravans, as they may have more favourable terms such as longer repayment periods.
What time of year is the cheapest to buy a caravan?
The best time to buy a caravan in Australia is typically during the off-peak seasons, particularly in autumn and winter. Demand for caravans tends to be lower during cooler seasons, leading to potential price reductions. You may also be able to take advantage of special incentives such as added accessories or flexible financing options when you buy at off-peak times.
Do caravans hold their value?
Caravans, like most vehicles, generally do not hold their value and depreciate over time. According to the Australian Tax Office (ATO), caravans and camper trailer lose their value by approximately 16.67% per year. Regular maintenance may help slow depreciation.
If you're looking to save, buying a used caravan can be a more economical option since the steepest depreciation has often already occurred in the first few years of ownership. However, you'll need to make sure if, when financing, your lender allows you to buy a used caravan.
What is the most common caravan size in Australia?
The most common size for an Australian on-road (smooth roads, highways) caravan is approximately six metres long, which provides ample space for a couple. This size is adequate to contain a separate shower and toilet, a kitchen, and a sleeping area.
For off-road (rough terrains) caravans, the most popular size tends to be slightly shorter, such as camper trailers, for better manoeuvrability.
Header photo by Benjamin Zanatta on Unsplash
In-text photo by Hanson Lu on Unsplash
