How to Choose a Caravan Loan: Fixed vs Variable Rate
Caravan loans offer buyers quick access to funds, making it easy to go caravanning sooner. The convenience these loans provide makes them a popular option for many holidaymakers and hobbyists. But before you start applying for finance, take note that not all caravan loans are the same. To get the best experience, you need to find a loan that suits your specific needs.
What are the different kinds of caravan loans?
The most common type of caravan loan is a secured caravan loan. With this loan, if you fail to make your repayments, your caravan will be repossessed by the lender to recoup costs. An unsecured caravan loan, on the other hand, has no asset put up as collateral but usually has higher interest rates and stricter terms.
Caravan loans also vary in interest rates, loan terms, and features. These aspects of the loan change based on the lender's criteria and the borrower’s financial situation. There are also different caravan loans for specific purchases, such as brand new caravan loans or used caravan loans.
When shopping around for a caravan loan, you’ll likely see two main types: fixed rate caravan loans and variable rate caravan loans. Their main difference is how the interest is calculated on the loan.
Variable rate caravan loans
A variable rate caravan loan’s interest rate may change over time based on market shifts, economic conditions, and other factors like the lender's prime rate. This means the overall loan cost, or the interest fees you must pay over the life of the loan, can change as well.
The way it works is simple; if market rates are high, you can expect your variable rate caravan loan’s interest rate to match. Conversely, when interest rates are low, your caravan loan’s rate will likely fall as well.
When the interest rate on your caravan loan changes, so does your repayment amount. The lower the rates are, the lower your repayments and vice versa. A lot of borrowers opt for a variable rate caravan loan to take advantage of possible rate falls. However, if rates climb unexpectedly, your loan costs will go up accordingly.
Another benefit of variable rate caravan loans is flexibility. Often, these caravan loans don’t have early payment fees and have redraw facilities that allow borrowers to make extra repayments. This also lets borrowers take full advantage of times when the interest rates are at their lowest.
Fixed rate caravan loans
A fixed rate caravan loan, as the name suggests, has a predetermined interest rate that will stay the same throughout the loan term. Changing market rates or economic factors will not affect the caravan loan. For many borrowers, this is an ideal loan as it remains constant with no possibility of sudden interest rate increases.
With a fixed rate caravan loan, you know the total cost of the loan immediately. This can help you keep up with the loan more and incorporate it into your budget better. You can plan payments months in advance and manage your finances with more ease.
The added stability that a fixed caravan loan offers is especially helpful for those juggling multiple debts, like a car loan and mortgage at the same time.
The most ideal time to get a fixed rate caravan loan is when rates are low but are forecasted to rise in the near future. Locking in low rates can save you thousands in interest costs.
Other factors to consider when applying for a caravan loan
In addition to interest rates, here are other factors you need to think about when shopping for the perfect caravan loan:
- Comparison rates – The comparison rate gives you an idea of the true cost of a caravan loan. This rate is calculated by combining the interest rate and associated fees. Using comparison rates, you can see if a low rate caravan loan is hiding expensive fees.
- Loan terms – The loan term will also affect the cost of your loan. The longer the loan term, the more interest you have to pay, making the loan more expensive. However, a shorter loan term might mean higher repayment amounts, which could make it difficult to manage the caravan loan.
- Loan features – Different lenders offer different loan features. Some may offer redraw facilities, balloon payments, and the like, while others don’t. It’s best to find out what features are available to you and how they can help you manage your caravan loan.
- Your finances – The most important thing you need to consider before applying for a caravan loan is your finances. Do you have a good credit score? Can your finances handle additional debt? Asking these questions can help you determine what kind of caravan loan you need.
Need help choosing the right caravan loan?
At loans.com.au, we offer a range of caravan finance options for you to choose from. Our friendly lending specialists are more than happy to help you find the ideal caravan loan for you. Get in touch with us today by calling 13 10 90 or apply online today!
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About the article
As Australia's leading online lender, loans.com.au has been helping people into their dream homes and cars for more than 10 years. Our content is written and reviewed by experienced financial experts. The information we provide is general in nature and does not take into account your personal objectives or needs. If you'd like to chat to one of our lending specialists about a home or car loan, contact us on Live Chat or by calling 13 10 90.
