How to finance your next classic car purchase

Photograph Credit: Tom Suddard

Let’s face it: Your baseball card collection may never be worth more than it is right now, so perhaps it’s time to sell some of your boys and do what you really want: Buy the classic car you always desired.

That 1954 Bowman Mickey Mantle card might bring you a healthy $20,000, but that’s not going to pay for the bright-red Ferrari you’re craving. All is not lost, however: Financing a classic car has never been easier, and low interest rates could actually make financing better than liquidating certain assets–such as your beloved 1954 Hank Aaron Topps rookie card. (1954 was a good year for ball players.)

Most traditional lenders such as banks and credit unions, as well as car manufacturers, will not finance a vehicle that’s older than 5 years,” notes Mitch Katz of Premier Financial Services. “Some traditional lenders view classic cars as toys and do not treat the lending category seriously. This limits the financing options for classic car buyers to specialty leasing/finance firms.” 

The most important thing to know about classic car financing,” says Thomas Joslin of Massachusetts-based J.J. Best Banc & Co., which bills itself as the oldest and largest financier of collector cars, “is that it is an easy, fast and convenient process that allows people to drive their dream car right away rather than waiting.” 

LightStream Senior Vice President Todd Nelson notes that with the current low interest rates, “Borrowing at a low interest rate with no fees may be a more attractive option to liquidating savings of investment assets in order to make a purchase.”

At this writing, Atlanta-based LightStream–a division of Truist, which is the merged companies of SunTrust and BB&T–has rates for auto loans starting at 2.49% with AutoPay. LightStream makes loans from $5000 to $100,000 on collectible cars and does not put a lien on the vehicle. All of its loans are unsecured–unusual in the business. They don’t evaluate or appraise a vehicle; “Instead,” Nelson explains, “LightStream is underwriting the borrower, reviewing their credit history, income and assets. Approved customers”–the process can take as little as one day–“can purchase any car they like.”

Thousands or Millions?

Certainly your credit score will impact whether you get a loan, and typically at what interest rate. It’s a good idea to check your credit history and make sure everything is up to date before applying for a loan. It’s also fair to ask lenders about “hard” hits on your credit history; too many will negatively affect your credit score. 

“I would recommend researching the company you are using to ensure that others have had a good experience,” says Clint Sly, president of Florida- based Collectors Financial Services and co-founder of The duPont Registry. “One of the most common complaints is when loan originators pull multiple credit reports.” 

Collectors Financial’s minimum loan amount is $1 million, “and our largest loan today is $100 million,” Sly adds. Most lenders use the car to guarantee the loan at a lower rate: “The individual’s credit profile initially secures the loan. However, the vehicle is used as collateral.” Some lenders will allow other cars, boats, motorcycles, road art, homes, credit lines, and securities against large multi-million-dollar collector car loans. 

Financing a classic isn’t just about buying something a little beyond your means. It could be a way to save on taxes or better park your money. Photograph Credit: Dirk de Jager

Sly says knowing the value of the vehicle is paramount. “Collectors Financial uses a team of analysts and our proprietary data resources, including a group of ASA [American Society of Appraisers] appraisers when needed.” 

Echoing other lenders, Sly says, “We also resource Hagerty’s data, which is the best in the business for most vehicles. The most challenging part of using valuation resources is having a knowledgeable evaluator who knows how to condition cars properly. The Hagerty Valuation Tool’s condition descriptions are foundational.” 

Taking the current owner’s word for it is dangerous but oh so common, Sly continues: “Everyone thinks their vehicle is a No. 1 condition car when an actual No. 1 is one of the best examples in the world. It’s better than factory new condition. A No. 2 vehicle will appear as it left the factory, so most classic cars are No. 3s: good-condition used cars.” 

Sly learned this the hard way when he bought an E21- chassis BMW from California years ago, relying only on Craigslist photos. “I knew it would not be perfect at $7000. However, I expected the ‘all original car’ to be No. 1-minus condition–until I understood ‘conditions’ better. Then I realized I had a No. 3 or 3-minus condition car. It was a little blow to my ego,” Sly says, “but I got over it.” 

Cobra or Gullwing, financing options exist. “Our largest loan today is $100 million,” says Clint Sly, president of Collectors Financial Services. Photograph Credit: Dirk de Jager

Don’t need a million-dollar car loan? Sly, Collectors Financial, Mecum Auctions, and his partner Lee Giannone developed Mecum Financial, a captive finance company for Mecum Auction customers with a minimum loan amount of $5000 and a maximum loan in the hundreds of thousands. 

[Behind the scenes at a Mecum auction.]

“We created Mecum’s classic car loan products to meet the needs of individual owners who buy at Mecum Auctions,” Giannone said. “We know they want the lowest down payment and lowest interest rates with the longest term, and we work to improve those every day.” 

A typical long-term loan for a tier-one credit borrower at the auction will fund 90% of the purchase price, including the buyer’s premium. Interest rates start in the “fours,” Giannone explains, adding, “We frequently have customers buying multiple cars and bikes at auction; we work to accommodate their needs on a given day.” 

Protect Your Investment

Maintaining the car’s value is critical. “I recently sold a really nice Ford muscle car to a first-time buyer,” says Stephen Plaster of Missouri-based Evergreen Investments, a car-savvy financial planner. “After several months of racing, tire-burning and other abuse, he came back to me wanting us to warranty the engine, which had problems. His claim was based on the fact that we had told him it was ‘completely restored,’ and therefore it should be expected to be as good as new–and therefore under a pseudo-factory warranty! Live and learn. My biggest regret was that this was a really nice guy, and he will probably not want to consider classic cars as a future investment due to this tough first lesson.

“I think the biggest mistake I see with a first-time buyer is that he thinks his collector car will just continue to go up in value,” Plaster continues. “He buys that 100-point Hemi ’Cuda, gives it to his teenage kid to drive, and then wants to sell it a year and several thousand miles later and make money. The deterioration in condition causes a deterioration in value,” he adds. “It’ll require a re-restoration to recapture that original value.”

Take care of your new classic car, Plaster says, “and the collateral for your loan is getting bigger rather than smaller.”

Photograph Credit: Dirk de Jager

Florida-based Collector Car Lending’s Carly Cook says the finance programs they have access to “are considered recreational lending. Since it’s not considered a necessity purchase, the qualification criteria is quite different, but it can still be very quick and easy to secure an approval. Because classic and collectible vehicles appreciate in value, the terms offered are drastically longer than a daily driver loan would be, and they don’t reflect on your credit score as an auto loan.

“Rates,” Cook continues, “are currently ranging from 6.2% to 17.95%, depending on credit. The terms available are based on the dollar amount of the loan but range from 60 to 144 months, with no prepayment penalty.” Collector Car Lending “is a concierge finance company. We hold your hand from beginning to end.” Most lenders, including Collector Car Lending, has sources for insuring your classic car, and you’ll also find some good insurance options in the pages of Classic Motorsports.

[What is diminished value and how to make a claim.]

“Everyone’s financial situation and perspective on the use of money is different,” Katz acknowledges. “Some people refuse to consider financing, because they believe that paying cash is a more financially prudent way to purchase a car. We believe you should explore all available financing options when buying any type of vehicle.”

Classic car financing doesn’t always have to involve millions of dollars, as some firms offer loans of just a few grand. Photograph Credit: David S. Wallens

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Comments
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Coupefan
Coupefan Reader
3/27/22 12:12 p.m.

A really irrelevant article unless you're rich and have many multiples of thousands of dollars (or more...lots more) to throw around.  The rest of us working, middle class slobs can only count on raiding the kid's college fund or hope for some familiar inheritance, which generally comes too late in life for any meaningful enjoyment.  Yep, it's an utterly depressing and miserable Sunday. 

dherr (Forum Supporter)
dherr (Forum Supporter) Dork
3/27/22 1:34 p.m.

I looked at this when I started my classic car side business. First two companies I talked with wanted to appraise the vehicle, needed me to provide them with all the details, insurance information and send them my life history..... seemed to be too much hassle for financing cars I will likely buy, update and sell in 6 months. So I just looked at getting an unsecured personal loan. Terms can be flexible, payments easy to make and I just pay it off when I sell the car or have the funds. Did this for my TR8 (not selling it), just paid off the balance and got another one to finance the Citroen SM. I paid well under market for the Citroen, so I am very confident that my investment is safe and I'll have the loan for less than a year, so this has been the easy button for me. Might not work for purchasing cars over 50K, but I have not been playing in that part of the car market, this works well for me. Of course if you are buying a car for your personal enjoyment to own for many years, you are probably better off getting a classic car loan at a lower interest rate. 

klharper
klharper New Reader
3/27/22 8:14 p.m.

While I think the financing of a toy is really a bad idea. I think the most obvious way is through a HELOC. The interest rate is currently 3.75 @ Truist and it is tax deductible. I would caution not to use more than 15% of your equity for the loan because you really don't want to lose your home due to the collapse of the value of the car and a need to raise funds.

From a purely financial point of view you are borrowing @ around 3% depending on your tax bracket, and assuming that you had the money to pay cash and invested it instead you could expect a return of 9.4% based on historical returns, and given the current state of the collector car market over the past several years you could expect a reasonable return on the appreciation on the asset, therefore taking a loan would make financial sense. 

But future gains are not guaranteed, and the market could decide that the 20 year old Ferrari that you just paid 150k for is too much for a car that is expensive to have maintained, to fast to have fun driving on the street, and really not that rare or good looking and drop the value to 50k almost overnight. Then taking a loan looks momumentally stupid, and worse do not be overleveraged when this happens, or you will learn what the Warren Buffet quote "when the tide goes out you see who is swimming naked" means.

For me I only buy collector cars with mad money. Money that I could spend on hookers and blow but would prefer to waste it on some pile of metal, rubber and glass.

Tim Suddard
Tim Suddard Publisher
3/28/22 6:53 a.m.

In reply to klharper :

Very salient points. I keep a credit line that is secured by my home, but have never really used it for buying cars.

redtanrt10
redtanrt10 New Reader
3/28/22 12:28 p.m.

LightStream is an interesting newcomer.  We are in a rising rate enviroment, the lowest rate now with them is about 4% for a 36 month term.

As mentioned, Heloc's are a very good choice, low rate, tax deductible and in many cases interest only.  Today with a Heloc at a 3.6% rate, the interest only payment on $100k is only $300 per month.  tim, these are a great way to go, but if your in for a long haul loan, knock down the principle to say 80% of the car's value to be safe!!

 

 

Tim Suddard
Tim Suddard Publisher
3/31/22 6:01 a.m.

In reply to redtanrt10 :

Maybe that 289 Cobra is in reach. Not sure I would take on that much debt at this stage of my life though.

 

frenchyd
frenchyd MegaDork
4/6/22 10:57 p.m.

In reply to Coupefan :

That's why I buy all my cars that are toys on the time payment plan.  
  I have a buy in plan that starts at $500. For that I get as much car as I can and spend the next year or two restoring it. 
     If anything happens I can walk away without risking my home or credit rating. 
    It's probably slightly more expensive this way.  But I don't have to sell it to break even. 

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