Now that you've found that classic car of your dreams, how are you going to pay for it? In most cases, classic car buyers will have to find a specialized lender that fully understands the ways rare cars are valued and how they're priced. The terms extended on classic or exotic car loans tend to be longer than those extended by lenders on conventional vehicles.
A first step might be to round up lender offers, finding ones that specialize in writing loans for your sweetheart vehicle. But there are things to attend to before applying:
Classic Car Loans: Before You Borrow
Classic vehicle ownership represents an investment. It's not unusual for a classic car to appreciate in value by as much as 12 percent annually. Since a classic car lender often pegs the loan to the applicant's credit and the vehicle value, there are pre-loan procedures that can dramatically affect the total cost of the car.
Get the Car Appraised
Use a professional appraiser familiar with the year, make, and model of the dream car. The lender may require their own inspection, but knowing the repair and modification history of the vehicle can benefit the borrower if there are discrepancies on the true value of the car. Classic vehicle inspections cost around $200 and evaluators can be found through classic car shows, car clubs and associations. Car prices are based on the scarcity of the model, the mechanical condition, and original features unique to the year and model. Other places to find classic valuations are online at organizations such as Hemmings Motor News, Hagerty Insurance, and the National Automobile Dealers Association.
Examine Your Credit Score
You can pull a free credit report at LendingTree to see where you stand. It may be difficult getting classic vehicle financing with a score lower than 680. With a credit score of 700, a borrower may get a classic car loan at 8.50% for a 10-year (120-month) term. Consumers with a score of 740 may qualify for financing at the low-end of the rate structure at 6.25%. With excellent credit, borrowers can find rates as low at 1.74% on a loan up to $100,000.
How Classic Car Loans Work
By lender definition, a classic car is at least 25 years old. A specialty loan on a classic vehicle typically is married to a 20% down-payment requirement. Borrowers will need to provide a copy of the vehicle title as part of the loan process. A lender may be amenable to adding the inspection fee, sales tax and optional warranty into the loan.
Classic car buyers can get longer terms on their loans, often up to 10 years (compared to 5 years on a conventional car loan). A shorter term will usually reap a lower interest rate, as will a larger down payment.
To determine the cost of monthly payments, borrowers can use the free LendingTree Auto Loan Calculator.
The Secured Loan Alternative
Qualified home owners may want to consider taking a home equity loan to pay for a classic vehicle. Rates on a home equity loan may be better than those on a classic car loan, and consumers may be able to deduct interest payments from their annual tax bills. To use home equity loans, car buyers should be especially cautious in evaluating the condition of the vehicle to be sure it will maintain value through the term of the loan.
Caveat emptor: Defaulting on a classic car loan means the loss of the vehicle; defaulting on a home equity loan could mean the loss of your house.