Financing the purchase of a vintage car can make sense in certain situations, but it depends on a variety of factors. Banks are now treating collector cars similarly to fine art, allowing you to borrow against the appraised value while you maintain possession of the vehicle(s).
Here are some considerations to help determine if financing a vintage car is the right decision for you:
Advantages of Financing the Purchase of a Vintage Car:
- Preserve Cash Flow:
- Financing allows you to spread the cost over time, preserving your cash for other investments or expenses.
- Potential Appreciation:
- Some vintage cars appreciate in value over time. If you buy a car that increases in value, the investment might offset the interest paid on the loan.
- Immediate Ownership:
- Financing enables you to purchase and enjoy the car immediately, rather than waiting to save the entire purchase amount.
- Tax Benefits:
- Depending on your location and tax laws, there might be potential tax benefits for financing a vehicle, especially if it’s used for business purposes or as an investment.
Disadvantages of Financing the Purchase of a Vintage Car:
- Interest Costs:
- Financing a car means you’ll pay interest on the loan, which increases the overall cost of the vehicle.
- Depreciation Risks:
- While some vintage cars appreciate, others may not. There’s a risk that the car’s value could decrease, making it harder to recoup your investment if you decide to sell.
- Maintenance and Upkeep:
- Vintage cars often require more maintenance and repairs, which can be costly. This added expense can be burdensome if you’re already making loan payments.
- Insurance Costs:
- Insuring a vintage car can be more expensive than insuring a newer vehicle. Ensure you factor this into your budget.
Factors to Consider:
- Interest Rates and Loan Terms:
- Compare different financing options to find the best interest rates and loan terms. Specialized lenders who focus on classic cars might offer better terms.
- Value and Investment Potential:
- Research the specific vintage car you’re interested in to understand its market value and investment potential. Consult classic car price guides, auction results, and expert opinions.
- Your Financial Situation:
- Assess your financial stability and ability to make regular loan payments. Ensure you have a budget for ongoing maintenance, insurance, and potential repairs.
- Insurance Requirements:
- Check the insurance requirements for financing a vintage car. Some lenders may require comprehensive coverage, which can be expensive.
- Purpose of the Purchase:
- Consider whether the purchase is for personal enjoyment, investment, or both. Your motivation can influence your decision to finance.
Classic Car Loan Options
Hobby Specific Financing
This is a fairly new alternative for someone wishing to buy an antique, classic or collectible vehicle. The loan representatives understand the collector car market – namely, why a 40-year old car might cost upwards of $100,000, or much more. Interest rates tend to be low and loan terms can be generous, keeping monthly payments affordable. See a list of potential loan providers.
PROS: Very low monthly payments | doesn’t tie up cash
CONS: The cost of borrowing money
Personal Loans
Your bank may extend you a personal loan, although amounts are often limited to $5,000. That works well if you’re a little short of the cash needed for a deal. Assuming good credit, you can get a small unsecured loan — you may pay for the lack of collateral though, with an interest rate that could easily exceed the prime rate.
PROS: Convenient
CONS: High interest | small principle
Home Equity Loans
These loans have grown in popularity because of their low interest rates. Though often tax deductible, you should consult your tax advisor to confirm before going this route. You’ll need to consider the variable interest rate and risk when deciding to put a lien on your home.
PROS: Lower interest rates | often tax deductible
CONS: Variable interest rates | the loss of your home if you default
Local Banks
A bank might approve your loan, if you’re lucky enough to work with a collector car enthusiast who understands your passion for older cars. And most don’t understand the difference between a collector car and a used car. They will likely offer you a short term loan – usually a max of 36 months – and a high interest rate up to double the cost of a new car loan.
PROS: Convenient location
CONS: High interest rates | possible lack of interest in collector car loans
Conclusion
Financing a vintage car can be a smart decision if you carefully evaluate the potential benefits and risks. Ensure you conduct thorough research, understand the terms of the loan, and have a clear picture of your financial situation. If the car is likely to appreciate in value and you have the means to cover the costs, financing might be a viable option. However, if the additional costs and risks outweigh the benefits, paying cash or saving for the purchase could be a better choice.
