Classic cars can be expensive—very expensive. Unlike other cars, though, they also tend to appreciate in value, so they can be a smart investment. But surprisingly few classic car enthusiasts consider financing their hobby and investment through a classic car loan.
Getting a loan for a classic car can be a bit tricky, but it's not impossible. You could try your local bank or credit union, the one that you have your home mortgage with, or the lender that has financed all of your regular vehicles. These are always good places to start. But you may find that they’ve never written a loan for the purchase of a classic vehicle and have zero knowledge of the classic and exotic car market. If that's the case, you'll need to broaden your search.
Find a Specialty Lender
Fortunately, as with insurance, there are several lenders out there that specialize in the financing of classic cars and other exotic vehicles. And, to be honest, they may be your only option. Companies such as J.J. Best Banc and Co., Woodside Credit, and Dupage Credit Union all specialize in classic, antique, and exotic vehicle loans. There are lots of others like them. Check online or ask your friends who have financed their dream cars.
Classic car loan companies are a great option for financing your car. Unlike many other lenders, they understand that what you are buying is not merely a used car. They appreciate the many esoteric factors that go into valuing a classic automobile and have a strong knowledge of the market that helps them accurately assess the car's value.
Getting an accurate assessment of your classic car's value is extremely important. A company that specializes in classic car loans is often better equipped to do this.
Another good way to find a specialty lender is to ask your friends at car shows (maybe not strangers!) who they used to finance their purchase. You might get the straightest answer from them since they're not trying to earn your commission.
Classic Car Loan Requirements
Many of the terms and procedures for obtaining a classic car loan are the same as those for a conventional loan. But there are also a few significant differences. You will, of course, be required to submit an application and, as with any car loan, conventional or otherwise, the lender will check your credit rating and history to determine whether you can afford the payments.
All finance companies are in the business to make money and minimize their risk exposure, so make sure you have taken care of any credit history problems before applying for your loan. Otherwise, you’ll be looking at a higher interest rate—or you may be turned down entirely.
Be Smart About It
It’s one thing to want a classic car, but it’s another thing to be able to afford it. In short, you need to figure out your budget and the amount that you will reasonably be able to pay every month. A classic car isn’t a purchase you should make if you’re on a shoestring budget.
You will be required to put down a minimum of 10% (and most likely 20%) of the vehicle’s purchase price. Keep in mind that the more you can afford to pay up front, the lower your interest rate will be. Also, a classic car loan term typically runs for up to seven or 10 years as compared to a standard car loan of five to seven years. If you can afford to make the payments for a shorter loan period, such as three or five years, consider the shorter term option. You will likely benefit from a shorter-duration loan, as they typically come with a lower interest rate.
Leasing a Classic Car Instead of Buying
Just like with a conventional automobile, leasing a classic car is a possible alternative to an outright purchase. With a lease, you and your lender will determine what is known as the “residual value” for your prospective purchase. The residual value is the minimum amount your classic will be worth at the end of the lease period.
The lender will then loan you the difference between the cost of the vehicle and its residual value. At the end of the lease period, the lender receives the car back and will then turn around and sell it for the residual value. If you are interested in keeping the vehicle at that time, you can purchase it from the lender or possibly negotiate another lease.
Leasing can be an excellent alternative to buying, especially if you like the idea of changing classic cars every few years. Just remember that you’ll likely have to purchase top-notch insurance if anyone other than you finances your classic car.
The Bottom Line
Whether you lease, borrow, or purchase your classic car outright, you will be taking on a serious financial responsibility. Classic car enthusiasts are passionate about their vehicles, but you cannot let your emotions get the best of you when buying that car of your dreams. Make sure that you or an expert inspect the vehicle before you buy to ensure you are getting the vehicle you think you are. And never finance a classic car that you can’t realistically afford, no matter how hard you’ve fallen in love. That love will disappear in the blink of an eye if you get behind on your payments.