Classic Car Loans: How To Finance a Classic Car
Table of Contents
- What is categorized as a classic car?
- Classic cars as an investment
- What’s the value of my classic car?
- Where to buy a classic car
A classic-car loan is going to have some of the same requirements as a traditional auto loan — with lenders considering your credit score, income, down payment, etc. However, traditional auto loans may be more restrictive about how old a vehicle is and how many miles are on it. Because of this, getting a traditional auto loan usually isn’t possible when purchasing a classic vehicle.
However, there are many lenders that specialize in classic-car loans. You’ll find nine listed in this article. The benefit with these lenders is that they understand the classic-car market, and how classics can appreciate in value rather than depreciate. Therefore, you’ll find many loans that offer no restrictions on age, mileage or loan-to-value. There are even options that don’t require a down payment.
Keep in mind that the credit score lenders use with your car loan may not be what you think. While FICO is commonly used for other types of loans, there are six different versions of its auto score that can be used by lenders financing vehicles.
Although the initial price of your classic vehicle may seem like a large expense, keep in mind there are other expenses that go along with such ownership. These include things like shipping, insurance, storage fees, restoration work, maintenance, after-market elements and unexpected repairs.
“The full restoration projects I work with run anywhere from $20,000 to $40,000,” says Bob Ross, owner of R&R Restorations, a classic car restoration firm based in Tucson, Ariz. “Once you get it restored, it’s like a new vehicle. So your maintenance costs will be lower, maybe around $500 a year.”
Other things to consider are options aimed at improving your classic set of wheels: things like fuel injection upgrades, air ride suspension, or performance chassis mods. Maybe you want to upgrade your classic car engine to modernize, turbo or supercharge it. Or you might opt for new suspension. All of these options can add value to your classic car, and there may be a good chance you’ll get additional money for your car if it has the type of options that are in high demand.
In addition, keep in mind that your insurance costs may be substantially higher than with other cars. And your gas mileage may have you spending more as well.
“The most important thing you’ll need is good credit,” says Julie Olian, communications director for Lightstream. Lightstream specializes in unsecured loans of up to $100,000 to people with good credit for any purpose, available in all 50 states.
So what does Lightstream look for? Olian pointed out a few key factors:
- Credit history. Your credit report should contain several years of credit history.
- Account variety. Your credit report should contain a variety of account types, such as credit cards, installment loans and a mortgage.
- Payment history. You should also have a good payment history, with few late payments and delinquencies to show you don’t have problems repaying your debts.
- Savings. You should be able to show you have the ability to save money. This can be demonstrated by having a savings account, retirement savings, stocks, bonds, etc
- Income. Stable and sufficient income and assets to repay current debt obligations and any new loan with LightStream.
- Ability to repay. One of the largest factors considered is the likelihood of repayment, in full and on-time.
After you’re approved, Lightstream doesn’t care which car you choose.
“As long as funds are used toward that classic car, we’re good with that,” says Olian. Purchase whatever make and model you desire. You can even use some of the funds for shipping, insurance or custom aftermarket accessories. Whatever money you don’t use, you can always give back — there’s no penalty for paying off the loan early and no repayment fees.
And if by chance you don’t meet the criteria for an unsecured loan, you can always look at getting a secured loan instead.
However, secured loans with Lightstream do come with some restrictions. The vehicle must:
1. Be lien-free.
2. Not be a commercial vehicle.
3. Be purchased and owned in the U.S.
4. Be classified as one of the following types:
- sport-utility vehicle (SUV)
- light-duty truck
- passenger or conversion van
General financing requirements
These are some of the requirements lenders may set for your loan.
- Good to excellent credit
- Downpayment of 10-20%
- Verifiable income
- Strong debt-to-income ratio
- Proof of insurance
Some lenders may have additional loan requirements or restrictions to qualify for classic car financing. These may include:
- An appraisal
- Age restrictions on the vehicle
- Mileage restrictions
- Physical inspection (engine runs, VIN matches)
- Loan-to-value ratios
Before you borrow
Here are some steps to take before beginning to shop for classic cars or looking for financing.
- Choose your vehicle. Decide if the vehicle you are looking to drive is going to be exotic, classic or antique. Narrow your choice of car down to your top three, or ideally know the make and type of classic car you are looking to buy.
- Research your vehicle. Get to know about your vehicle. There are lots of car enthusiasts on YouTube who share their personal experiences with particular cars, including the cost of maintenance and repairs. This can give you a good idea about whether a specific classic belongs in your garage.
- Research pricing. Pricing guides like Nada Guides, Cars of Particular Interest Price Guide and the Platinum Auction Database allow you to get an idea of what classic cars are worth.
- Find a mechanic. You can’t just take your classic to any mechanic and expect them to know what to do. You’ll need to find local people you trust to do regular maintenance, repairs and any restoration work you may need.
- Get insurance quotes. You don’t want to be surprised by your insurance. Before you make a purchase, get quotes from multiple insurance companies so you know exactly what to expect when it comes time to insure your classic.
- Get the vehicle appraised. Do a local search to find a classic car appraiser in your area.
- Know your credit score. Having good credit is an important part of getting approved for classic car loans. You can get your free credit score from LendingTree. If you want to go the extra mile, start working on going from good to excellent credit.
- Determine a down payment amount. Know how much you can afford to put down on the vehicle and what’s required for the loan you’re considering.
- Additional expenses. When considering the price of the vehicle and how much you can afford, keep in mind additional expenses, like tax, title, registration as well as shipping, storage, maintenance, and repairs.
Here are some classic car finance companies to consider:
- Collector Car Lending
- DuPage Credit Union
- J.J. Best Banc and Co.
- Premier Financial Services
- StarOne Credit Union
- Woodside Credit
Leasing a classic car
Many people choose to lease a classic car because the payments are lower. It’s also an easy way to get into a classic or exotic vehicle. However, the drawback is you don’t own the vehicle, and you may pay more over time for the vehicle should you choose to purchase it at the end of your lease.
Depending on your lease contract, you may be able to exercise the right to purchase your leased vehicle for the residual, while simultaneously selling it to a third party for more than the residual, resulting in a profit.
- Pro: Lower monthly payment
- Pro: Sell the car prior to lease end for a profit.
- Con. Don’t own the vehicle.
- Con. May pay more for the vehicle in the long run, compared with a straight purchase.
Taking out a home equity loan
Taking out a home equity loan makes it easy to get the cash needed to make a classic car purchase, and you may receive a nice, low rate. However, keep in mind that your home is now used as security on the car loan, putting your home at risk should you default. Additionally, that initial low rate could increase, as your home equity loan is a variable rate.
- Pro: Easy to get
- Pro: Lower initial rate
- Con: Home as security
- Con: Variable rate
Taking out a personal loan
Many lenders offer personal loans which may be used for a variety of purposes, including purchasing a classic car. While personal loans are convenient and easy to obtain, it may be difficult to cover the full cost of your classic car using one.
Personal loan companies often have personal loans from $1,000 to $40,000, which may not cover the cost of the car you want. However, specialty lenders like Lightstream offer loans up to $100,000 and allow you to use the money for additional expenses, such as tax, title, registration, shipping and restoration. The rate you receive on your personal loan will also be connected to your creditworthiness.
- Pro: Easy to get.
- Pro: Can cover additional costs beyond just the vehicle purchase.
- Con: Smaller loan amounts depending on the company you go with.
- Con: May have a higher interest rate for those with less-stellar credit.
When we talk about classic cars, there are variety of ways to categorize them. The top three are: antique, classic, and exotic. Let’s take a look at what distinguishes each.
- Antique. According to the Antique Automotive Club of America (AACA), an antique car is defined as anything 25 years or older. Within this general definition, there are 22 classifications of cars, including limited-production vehicles, Ford V-8s, Chevy Corvettes, Ford Thunderbirds, and Ford Mustangs to name a few. You may see the classifications and examples of each in the 2017 Lake Erie Region Winner’s Circle Gallery.
- Classic. The Classic Car Club of America (CCCA) defines classic cars as built between 1915 and 1948 and distinguished by fine design, high engineering standards and superior workmanship. The AACA defines classic as anything built before 1948. The DMV usually defers to the CCCA for defining purposes.
- Exotic. Exotic cars are typically characterized by limited production from an elite auto maker, often overseas. They may have stylish, all-leather interior, high-end electronics, and a very high sticker price. The emphasis for these vehicles is on sleek looks and high engine performance.
- Aston Martin
While these definitions are frequently debated and collectors may petition to have their cars added to the ranks of the Classic Car Club of America, Robert McAtee, who sits on the board of the CCCA in the Arizona region, shared his perspective.
“Today, traditional definitions of classic and antique have become rather vague,” McAtee told LendingTree. “Traditional hobbyists may take offense with those loose terms, but younger collectors don’t have the perspective to know any better. To a young collector today, anything pre-1980 might be considered an antique while us older guys still think of these cars as rather new.”
Hal McGinnis, a car collector in Katy, Texas, defines it this way: “Exotics and classics are cars that have a value curve that’s either flat or goes up,” he says. “For example, a Corvette goes down, like a used car. So I don’t consider it in the same category as a Porsche 911 or a Ferrari 308, which you can usually sell for more than what you paid.”
Historic versus classic
The Department of Motor Vehicles for each state has guidelines for what qualifies as a historic or classic car. In general, the definition of “classic” is governed by the presiding local chapter of the Classic Car Club of America. Historic cars may have significantly fewer requirements, such as any make and model that is 20-25 years old or older. Check with your local DMV for exact requirements.
Many financial institutions that handle classic-car loans also offer financing for a variety of unique vehicles. Other types of vehicles that you may be able to finance include:
- Vintage cars
- Collector cars
- Muscle cars
- Hot rods
- Kit cars
- Sports cars
- Old cars
- Wooden boats
“The point of classic cars is to be able to buy the cars and enjoy them, then sell them for what you have invested in them,” says McGinnis.
Because these cars are so unique and there’s enough of a demand for them, you could be like the guy over at EatSleepDrive, a YouTube channel dedicated to all things automotive, who drove a Lotus Elise for a year for $54. Or this guy who drove a Ferrari for a year for free.
McGinnis is a big proponent of using classic cars as an investment. “On my Porsche 911, I will have owned it for two years and I’ll make about $1,500 on it,” he says. “Basically, it paid for itself and the insurance I paid on it. Literally, I drove it for nothing.”
Not just for millionaires
People who own classic cars aren’t necessarily multimillionaires, and owning a classic may not cost what you think. Sure, you have to have enough cash or good credit to finance, but at the end of it, when you sell it, there’s a solid chance that you’re going to get your money back. Most specialty lenders understand this and are willing to offer financing terms based on the fact that most classic cars will appreciate in value over time.
The market goes in cycles
The classic car market goes in cycles. One year, a car is hot, the next it’s not. Keep this in mind when buying your classic. A lot of classic cars have value specifically to the people who buy them. For example, people who grew up driving a ‘55 Chevy are getting older now. You may expect that those that wanted one have likely already bought one, so future demand may be down for those classics.
Conversely, there are cars from the 1990s that you may expect to go up in demand and down in supply, leading to an increase in value. These are vehicles like the 9X7, Toyota Supra, 350Z, Toyota MR2 and the first-generation Miata. These may become the “classics” of the future.
Take the Toyota Starlet, for example. It’s a tiny little three-door hatchback, 6,400 RPMs. McGinnis says, “They’re an absolute blast to drive and you just can’t find them and when you do, they’re outrageous money.”
Understanding the market and the demand for specific cars will help you make strong financial decisions when it comes to investing in a classic car.
You can’t go to Carmax and get a quote on the classic car you’re considering buying, so how are you going to determine its value?
One way is to track prices based on auction sales. Sites like SportsCarMarket.com are a great place to find classic-car auction prices. Other pricing guides include Nada Guides, Old Cars Price Guide and Cars of Particular Interest Price Guide.