Classic Car Financing

So you have found the classic car of your dreams to buy, and you now need to get a loan for it. A classic car loan is not the same as a typical auto loan, and most conventional auto lenders do not deal with classic cars due to the difficulty of determining the true value of a classic car or collector car. I will go through the details of classic car loans, and how to apply for one.

Advantages of using a specialty car lender
Even if you find a general lender to finance your classic car, you may still want to look into a specialty lender for a few reasons.

Specialty car lenders know about classic cars – most standard auto lenders use Kelley Blue Book or NADA price guides, and these guides just do not work with older collectibles, especially when it comes to restored cars, hot rods, etc. Using a specialty lender may considerably speed up the process, AND you may get a lower interest rate because they understand the true value of your purchase.

Longer loan terms – Typical auto loans are three to five years, whereas specialty classic car loans can be up to 10 years. You will of course have a higher interest rate the longer your loan is, but the options may be there, unlike with a standard auto lender.

Steps to apply for a classic car loan
Your first step should be to check your credit score and make sure your credit is in decent shape. You should have no problems getting a loan if your credit score is above 700, and anything below 600 may make it difficult or nearly impossible to get a loan. Any recent bankruptcies or pending lawsuits will disqualify you as well.

Generally you do not need to have the car you want to purchase found and ready to buy. Specialty classic car lenders know that you are looking for that car that fits you, whether it is a limited manufactured collectible, to a unique color or specific options of a car. You may have 30 to 60 days to find and purchase the car, but you can be prequalified before searching.

You will probably need to have some money saved before getting a classic car loan. Most specialty auto lenders require a 20% down payment on the classic car, or 30% for a hot rod. The required down payment amount can go up or down depending on your credit score, so knowing this beforehand can be helpful.
Make sure the seller has the title to the vehicle. Eight states do not issue titles for collectible cars, and this will make it nearly impossible to acquire a loan from ANY lender. If you have found a car before applying for a loan, you may want to get a photocopy of the title for the lender, which may speed up the approval process.

Determining a Classic Car Loan Amount
When the time comes to determine the loan amount, consider these costs that you may want to incorporate into the cost of the car.

Travel and shipping costs – You may want to inspect your car first hand before purchase, and if the car is not in your area there will be travel costs involved. You may not want to drive your new collector car 1000 miles back to your home, which will require shipping costs to be incurred.

Classic Car Inspections – Most specialty lenders require the car to be inspected by a specialty car inspection service before a loan can be approved, and that can cost a few hundred dollars. This is not a bad thing in my view. Not only do you want to know whether you are truly buying an original model and/or paying the correct price for the car, but the lender wants to know as well. If you default on your loan and the lender has to confiscate the car, they will want the value of the car to be what they lent (or very close to it). If you were already planning on using an inspection service, you may want to talk to your lender and see what they use, since you will be required to use them anyway. No need to use two different inspection companies if you don’t need to.

Should I still finance my classic car if I have the cash to purchase it?
Many car collectors finance their purchases even if they have the cash. Classic cars over the last 10 to 15 years have exploded in value, sometimes growing at 15% a year. That makes your car purchase a true investment since it is growing faster than the 6% to 7% interest rate you will probably have (if your credit is worthy enough). However, we are now in some economic uncertainty, and this may not hold true much longer. So far the trend is documented and original limited models and collectibles are increasing, but the replica models are cooling off a bit.