COVID-19 has had a gigantic ripple effect on the Australian and global economies. As industries felt the brunt of lockdowns and travel bans, many Australians lost jobs and the country dipped into a recession.
At the time of writing there has been positive news regarding low rates of COVID-19 infections and borders reopening.
This has prompted a huge boom in demand for caravans, campers and motorhomes as Australians explore their domestic travel options now that Danube river cruises and cheeky trips to Bali are off the agenda for a while.
Many are looking to fully or partially finance the purchase of an RV, which means finding a loan for the desired amount. But economic uncertainty has made financial institutions more risk-averse and stricter with their lending criteria, says Wayne Park, Relationship Manager with finance broker Credit One. He works directly with more than 40 financiers as well as dealers and customers around Australia and can attest firsthand to the number of hoops everyday Aussies now need to jump through to get that loan started.
Here, he offers some expert advice to help you to obtain finance.
UNDER THE MICROSCOPE
Due to COVID, financial institutions have taken a good look at how they were assessing potential consumers keen to fund their dream RV. Uncertain economic times have inspired a solid dose of caution around risk.
Some of the hardships being endured by everyday Australians have come to the fore and added more complexity to financing — people lost jobs, were receiving government subsidies, placing mortgages on hold or even accessing super money, all of which created their own set of issues, says Park.
“The financiers have stepped up the criteria for lending and are looking more deeply into each applicant’s current financial situation,” he says. “More documents are being required which in turn extends approval times. This does create frustration for the applicants and has also added to the time for brokers to gain approvals.”
BE A JOB-KEEPER
Finance companies have always been cautious about the employment status of customers to whom they lend, but it is now high on the list of financiers and will be scrutinised. Stable employment is one of the keys to easily securing a loan, as is your credit rating.
Casual staff may set off a few red flags, but a finance company will look favourably on your position if it is long-standing and your hours and pay are regular. Those who have started a new job — and there are plenty of people who have been forced to change jobs — and are on probation might be another story, says Park.
“We find it difficult to obtain money for those in probation,” he says. “If someone is looking for finance and is newly employed, maybe they should hold off until such time as their probation period is over.
“However, if purchasing a new unit and the build time and expected delivery of the RV is past the end of your probation period then we can still take the application. Things financiers will look for are stability in employment, a good credit history, and if people have previous or existing loans that they kept in order. Being asset backed is also an advantage and will help prove previous history of managing a loan. If you tick these boxes you certainly are in a much stronger financial position to achieve a positive result.”
CONSIDER YOUR LOAN CONDITIONS
Almost all RV finance is considered an asset loan, which means money is loaned using your caravan, camper or motorhome as an asset, rather than an unsecured personal loan (depending on the age of the van and your personal financial profile). Asset loans also offer better interest rates (usually fixed for the term of the loan) as they involve less risk.
Park says there are myriad lenders who will finance your RV (Credit One deals with 40 different financiers) so it is well worth finding the loan that is right for you, and that isn’t always the one with the cheapest rates. Some loans will have greater restrictions on features such as the ability to make extra repayments, higher exit fees if you repay the balance sooner and the ability to make online transfers.
And there is always the business option. If you are an ABN holder and have been for over two years and are registered for GST there are certainly options available.
“Buyers should be looking to tailor that loan to best suit how they want to manage it,” Park advises. “People need to be a bit cautious about just chasing the interest rate, because sometimes the cheapest interest rate does come with its own set of problems.
“You need to ask a number of questions to make sure you completely understand what you are actually signing up for right from get-go. People can get caught up in the excitement of owning a caravan, camper or motorhome without really considering all the details.”
If you are finding it more difficult to obtain finance as restrictions tighten thanks to COVID-19, Credit One has National Motor Loans (NML) at their disposal which is in-house money offered to customers through a similar application process (certain lending criteria need to be observed)
Repayments on finance do not start until the financial contract has been signed and you have collected your new pride and joy. In the case of new builds, this might not be for 12 to 18 months given current market and supply conditions.
“The financiers do not fund an asset until it has been completed, so the loan itself just sits in limbo until such time, usually about a week prior to pickup of the caravan,” says Park.
It’s at this point final tweaks can be made to conditions before it is finalised.
“When you apply for a loan it doesn’t mean that you are locked into the terms or timeframe or repayments,” Park says. “You may have asked for a seven-year term but now want a five-year term.” Credit One offers flexibility and tries to tailor the loan to suit each individual borrowers’ circumstances.
While we all recognise now that the world can literally change overnight, it is important to maintain some stability with regard to your personal circumstances over the long term, especially between applying for finance and signing the final finance contract.
Around 80 per cent of Australian-made caravans are manufactured in Victoria, so the state’s second lockdown halted production and choked off supply across the country. Lead times for new orders began to blow out to six months or longer when coupled with the huge uptick in demand for caravans.
“Some dealers are now taking orders out to 2022 because people are concerned that they might not get the build spot when they want to be able to pick their van up and start their new journey and live the lifestyle,” says Park.
“We are travelling through extraordinary times with regard to people wanting to purchase caravans, campers and motorhomes and we have had an increase in people wanting to secure finance or using finance to purchase.”
While this is valuable information for buyers in terms of expected delivery, it also has repercussions for those looking for finance. Buyers are evaluated at the time of application on their suitability for finance based on their employment and credit history, current debts and ability to repay. If your caravan isn’t due for delivery until 12 months’ time, your finance will undoubtedly be reviewed again before the final handover.
“If there has been a change to your financial circumstances which could be a job change, recently unemployed or you have been moved into a lower paying job, you may have taken out another loan after gaining approval but prior to collecting your new unit. By changing your financial profile you may affect your capacity to repay, then that is an issue.” Park says.
Be upfront about your change in circumstance and your broker will be able to walk you through various options. There are no penalties if you can no longer afford the loan, however the RV dealer or manufacturer may retain your deposit. This is for you to discuss with the dealer.
DON’T GET ANOTHER LOAN
It may seem obvious, but once approved for the finance, applying for a different loan or making another purchase on borrowed money may end with you now not meeting serviceability of the loan and unable to go through with the purchase of your new pride and joy.
“If you get extra lending that will impact on capacity to repay the now-approved loan,” says Park.
“Once you have gained approval, you have committed to the RV and you just need to sit tight and wait for it to be delivered.”
Also consider avoiding other large purchases and major changes in your household spending as that may also have an impact on your finance suitability.
“And maybe don’t have 12 more kids!” jokes Park.
APPLY FOR THE MAXIMUM
Park says you should consider applying for the maximum amount you would require rather than a lower figure. His reasoning is simple — it’s a safety net in case circumstances change, or you find yourself in need of the whole sale price rather than to partially fund it. Plus, you’ll need to re-evaluate the loan all over again — and that’s not only inconvenient but could also be disappointing.
“It is easier to wind an applied amount back than it is to increase it,” Park says. “If you have applied for a smaller amount with the intent to save the balance but haven’t managed to do so, then it becomes an issue because we could have to go back and rework the loan — in which case you may not meet capacity.”
Being pre-approved for finance is akin to having an insurance policy — it’s a plan ready to go.
Pre-approval means a finance company assesses your employment, credit history and ability to repay your desired loan amount. It sits in limbo until you find the perfect RV and is only then enabled. Having pre-approval means you know exactly how much you can spend if visiting a show, scouring showrooms or the internet and offers peace of mind.
Of course, if you decide to purchase a new RV that will take several months to build, keep in mind the application will likely be reviewed before the funds are released and you can go and pick up your shiny new toy.
Interested in climbing aboard the RV bandwagon? Credit One has access to a large number of financiers that can tailor a loan to suit your individual needs. Having flexibility inside the loan to make extra repayments or to terminate the loan early is fast becoming the preferred option for many borrowers while keeping costs down. The Credit One team has a strong history of getting more people into this great lifestyle as they deal with industry professionals’ day in and day out.
For more information about financing your dream or to obtain a pre-approval prior to negotiating with a dealer or private seller, call the Credit One team on 1300 273 348, 07 3420 7030 or visit creditone.com.au.