Too often I hear of potential buyers going through the process of doing their research, finding the car they want, and dealing with the seller before they even think about financing. To be financed by a classic car lender, you really need to have a great if not excellent credit history. Anything above 700 for a FICA score and you shouldn’t have any problems, and anything below 700 you may want to make sure you are pre-approved before you go through any of the following steps trying to buy a vehicle.
Checking your credit score is a good idea if you haven’t done this in years or applied for any loans. Too often potential buyers find in the last steps of the buying process that there are errors or other serious issues with one of the credit bureaus (not always their fault), which can delay or even deny a loan approval even though they have excellent credit. Mistakes are unfortunately too common with credit bureaus (One credit agency had a wrong name for me, and another agency had someone’s delinquent accounts listed under my name. This took over a month to resolve.)
I highly suggest you cross this step off early in the buying process. The last thing you want to do is find the car of your dreams and be tied up with dealing with credit bureaus as your car is sold to another buyer.
Under federal law, you are entitled to a free annual credit report. You can get access to this report by following the link below.
http://www.ftc.gov/bcp/edu/microsites/freereports/index.shtml
This report is general, but it should give you enough information to determine if you need to dig into any problems further. The three main credit bureaus are:
http://www.transunion.com
http://www.experian.com
http://www.equifax.com
You may need to work with any one of these agencies separately depending on what is found on your free annual credit report. Please don’t overlook this step if you plan on applying for a loan to make your purchase.
Financing a classic car is not exactly the same as financing a daily driving vehicle. While it may be possible to have your local bank finance a collector car loan, there are a number of reasons why you are better off working with a specialty lender.
1) Better Loan Rates – Specialty car lenders understand the true value of a collectible car, whereas a standard lender may not, and will not offer the best rates possible.
2) Longer Loan Terms – Typical auto loans are 3 to 5 years, but specialty loans can be up to 10 years due to the high cost of some cars. The longer the loan the higher the interest rate, but at least the option may be available to you.
3) Speedier Loan Process – Again, specialty lenders specialize in collector car loans, whereas a standard lender may take longer as they try to evaluate the value of the car or go back and forth with other parties they may be working with to underwrite the loan.
If you go through a specialty lender, you will likely have 30 to 60 days to find your car before you need to reapply for the loan. Generally you will need a 20% down payment on a classic car, and possibly 30% if you are buying a hot rod or other specialty/custom car that is harder to determine the value on.
Make sure the seller has the title to the vehicle as no lender will approve a loan without it, and many older cars can have problems with the title. If the title is not available it may be possible to get a new one, but there are a few states where it is nearly impossible. In most states a car older than 1967 will be issued a “Registration Certificate” which basically becomes that vehicles title. You will need to check with your local DMV to clarify your states rules.
Here is a great link, with a section for each state showing details on how to get a lost title and detailed regulations for classic cars, kit cars, etc.
http://www.bipac.net/page.asp?content=tag_title_toolbox&g=SEMAGA
When determining the loan amount, make sure you factor in other criteria you may need to pay for other than just the car. Travel costs if you will be going out to see the car beforehand, shipping costs if you are having it delivered, any inspections or appraisals you may need, and taxes.
Some car collectors finance their purchase even if they have the cash to purchase the car outright. When the collector market was hot in the late 90's and early 2000's, the value of some models were rising dramatically, sometimes 10%-20% a year. Economically this would make sense to borrow at a low interest rate as an investment, but today the market has cooled a bit. As I wrote in my blog post Can Classic Cars Be a Good Investment, purchasing a classic car as an investment is a tough ordeal.
Chapter 7 - Inspecting a Classic Car