Classic Car Financing 101: Auto Loans
Trips to classic car shows and faithful viewership of programs like “Lost in Transmission” may have you feeling the itch to purchase a vintage or classic vehicle. One major problem that a lot of auto enthusiasts infected by the classic car bug face is financing. Purchasing and restoring classic cars for sale can be quite expensive, and many enthusiasts simply don’t have the cash up front to finance their hobby.
Financing is available to purchase classic cars, but you have to look hard to find lenders willing to offer loans on a classic vehicle. Traditional lenders are leery of lending customers—even those who already have mortgages and other loans with them—money to purchase a classic automobile.
One of the major problems that traditional lenders like banks and credit unions have with lending money for classic and collectible vehicle purchases is that their staff is often not well-acquainted with the collectible car market. The collectible car market is a small niche segment of the auto market, and few banks have staff members experienced in weighing the risk of such loans.
Also, in many classic car transactions, the amount of money borrowed will also be much more than the assessed value of the car, making it almost useless as collateral. If you have a great relationship with your bank, you might catch a break and get a loan, especially if you work with a small-town bank that has less formal bureaucracy than big corporate banks; otherwise, you’ll need to find specialty lenders.
Finding the Right Lender
There are a number of specialty lenders who deal exclusively in financing purchases of classic cars for sale. In addition to these lenders, some classic and vintage car dealers may have financing programs of their own. These lenders have greater experience in evaluating the value of classic and collectible vehicles and a greater tolerance for the risk involved with these loans.
The process to obtain a loan for a collectible vehicle is a lot like the process of financing a new or used car purchase. Buyers will need to submit an application, and the lender will evaluate their credit rating and history to determine whether they’re a safe bet to extend financing to.
When purchasing a collector’s car, you can expect to be required to put down a substantial down payment. Typically, your lender will ask for a down payment of 10 to 30 percent. Your interest rate may be higher than what you would pay for a new or used car loan. You can expect interest rates ranging from 5 to 10 percent. Loan terms for classic car financing typically extend to 10 to 12 years.
Financiers for collector’s vehicles typically seek to discourage borrowing among speculators, as these borrowers tend to be riskier than those who borrow funds to purchase a vehicle they truly love. Lenders will typically require that borrowers title and insure the vehicle under their name.
10 Most Expensive Classic Cars Sold at Auction
|1961 Ferrari 250 GT SWB California Spider||$18,500,000||Arcturial, Paris, 2015|
|1939 Alfa Romeo 8C 2900B Lungo Spider by Touring||$19,800,000||RM Sotheby’s Auctions, Monterey Sale, 2016|
|1955 Jaguar D-Type||$21,780,000||RM Sotheby’s Auctions, Monterey Sale, 2016|
|1956 Aston Martin DBR1||$22,500,000||RM Sotheby’s Auctions, Monterey Sale, 2017|
|1964 Ferrari 275 GTB/C Speciale by Scaglietti||$26,400,000||RM Sotheby’s Auctions, Monterey Sale, 2014|
|1967 Ferrari 275 GTB/4*S NART Spider||$27,500,000||RM Sotheby’s Auctions, Monterey Sale, 2013|
|1956 Ferrari 290 MM||$28,050,000||RM Sotheby’s Auctions, New York City, 2016|
|1954 Mercedes-Benz W196||$29,600,000||Goodwood Festival of Speed, 2013|
|1957 Ferrari 335 Sport Scaglietti||$35,700,000||Arcturial, Paris, 2016|
|1962 Ferrari 250 GTO||$38,115,000||Bonhams, The Quail, 2014|
Financing Restoration Costs
While you may be able to find a lender to lend you money to purchase a classic car for sale, it’s a lot harder to find one willing to finance a restoration project. For these projects, you may have to obtain a personal line of credit from your bank or use credit cards.
If you have good credit and think that you can quickly pay off the amount of money you borrow for the restoration project, using credit cards to finance some restoration work can be a good alternative. Credit card companies often extend zero percent interest for a year or more to new customers with good credit. If your restoration needs will only cost a few thousand dollars, this may be your best option for financing purchasing parts and tools.
Preparing to Borrow
There are a number of things you can do to obtain favorable treatment from lenders who issue loans to purchase collector’s vehicles. Improving your credit is a great way to ensure you’re able to get a loan and to get the best interest rate available. These tips can help you improve your credit before seeking out a lender:
- Pay down your debt. If you have large outstanding debts, pay them down before taking on new debt to finance the purchase of a classic car. Your debt burden has a big impact on your credit score and, if you’ve maxed out several credit cards, it can impact your ability to find financing.
- Pay bills on time. A large portion of the formula that determines your credit score depends on your timely payment of bills. Lenders view timely payment as evidence of personal responsibility and financial security. They reward timely payers of bills with more favorable interest rates and terms.
- Pay off old debts. If you have an old credit card balance or student loan that you’ve been making minimum payments on for years, go ahead and knock them out before taking on new debt. Old debts that have only been minimally paid over time will drag your credit score down.
- Inspect your credit history. Sometimes the credit bureaus err and assign the wrong debt to the wrong consumer. Pore over your history to ensure all information is accurate.
Now Is the Time
Right now it’s a buyer’s markets for collector’s cars. The market experienced a tremendous price surge that hit its peak in 2015 and is now in the middle of a correction. The Hagerty Market Rating Index tracks the collector’s car market and shows that vintage automobile prices have fallen considerably from their September 2015 peak.
The Hagerty Market Index is based on changes in dollars and volume of the collector car market and is adjusted for inflation. The index fell considerably during the Great Recession but surged considerably during the recovery before peaking in 2015.
Prices are low now, but the market is cyclical, and they are sure to rebound. Because collector car prices are so low right now, this is an ideal time to purchase a vintage or classic car for sale. Investors can improve their chances of turning a profit by buying now while prices have taken a dip, and collectors can also benefit by picking up the car of their dreams at a bargain price.
Show Cars of Boca Raton provides a specialized buying experience for customers seeking vintage cars, classic cars, or muscle cars for sale. In the automobile business for over 40 years, Show Cars of Boca Raton has the experience and connections to help you find just about any collector’s vehicle you may have your heart set on purchasing.
Show Cars of Boca Raton has an inventory of more than 100 collector’s vehicles and is always looking to purchase more. Our company makes buying easy and Show Cars of Boca Raton can even help with financing. Call or click here to contact us today to find out how to get your dream car in the garage.