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Motorhome Finance Explained

Finance can be confusing, you need to know your balloon payments from your monthly instalments, and your PCPs from your HP. Let us help you understand them.

Hire Purchase (HP)
Hire Purchase (HP) is a way of buying where you pay a deposit up front, and then pay off the rest of the balance – plus the interest - in equal monthly instalments.
By paying a bigger deposit, you can make your monthly payments smaller. The repayments on HP are high compared with other types of finance, but your payments won’t change until the end of the agreement. Providing you keep them up, you will know exactly how much you are paying, and for how long, and the motorhome will be yours at the end of the agreement.
Personal Contract Purchase (PCP)
With Personal Contract Purchase (PCP) you pay an initial deposit, followed by monthly instalments to pay a proportion of the loan amount you agree to. At the end of the term, you have the option to pay a large final payment, which will enable you to clear the remaining balance and own the motorhome outright.
If you do not wish to pay a large final payment, you have other options, too. As long as you don’t exceed your pre-agreed mileage limit and the motorhome hasn’t suffered damage over and above normal wear and tear - you can hand the motorhome back and walk away. You could also have the option to exchange the motorhome for another motorhome from the dealer who agreed the finance deal in the first place, this way you can use any equity you’ve built up in your current motorhome towards your down-payment. With PCP, the deposit, monthly payments, final payment and length of agreement can often be adjusted to suit you. The monthly payments are typically lower than on Hire Purchase but remember you will have to pay more at the end of the deal if you want to keep the motorhome.
Annual Percentage Rate (APR)
The Annual Percentage Rate (APR) is the amount of interest you’ll pay yearly on the money you’ve borrowed, including the various fees that apply - this will help you accurately determine and compare the overall annual cost of your agreement.
APR should not be confused with the ‘Flat Rate’, which is the rate of interest not including fees. When you are comparing finance deals, always make sure you’re comparing like-for-like, so do not compare APR with flat rate as it is not the same.
Balloon payment
A balloon payment is the large final payment you will need to pay to own a motorhome outright, you will find this as the end of a PCP agreement.
A balloon payment is essentially a portion of the loan amount, which is deferred until the end of the loan, to make your monthly payments lower. You can choose not to pay the balloon payment, but obviously, that will mean you won’t own the motorhome.
Credit agreement
A credit agreement is a document that details the terms of the deal you enter into with the finance company.
Credit history/rating/credit/record
This is Information based on your previous borrowing record, lenders will check this to decide if you’re a reliable person to lend to or not.
The value that your motorhome loses over time due to things such as age, mileage and wear and tear.
Equity/negative equity
Equity is when the market value of the motorhome is more than what you still owe on it, and you can either pocket the difference or use it towards a deposit on another motorhome.
Negative equity is when you owe more on the motorhome than the motorhome is worth, and unfortunately, you’ll be liable for the difference. If you have negative equity you can sometimes settle the amount yourself, or you may be able to carry the amount across to a new deal for another motorhome.
Financial Conduct Authority (FCA)
The Financial Conduct Authority (FCA) are the body that regulates the UK’s financial services industry. They aim to protect consumers and monitor the conduct of lenders to help ensure stability.
Fixed rate
If you get a fixed rate, this means that your monthly payments won’t be affected by changes in the interest rate (e.g. Bank of England Base Rate), and will always remain the same.
Flat rate
The amount of monthly interest you’ll pay, not including fees. That’s what makes it different from APR, as that does include fees.
When you trade-in your existing motorhome, using its value as part of the payment for a new one.
Residual/resale value
The value of your motorhome at the time you part ways with it.
The period of repayment, which you’ll find in your agreement as the number of months over which your payments are spread.
Total amount payable
The total amount you’ll have paid at the end of your finance agreement. This figure includes your motorhome’s on-the-road price, plus any interest and charges applicable.

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