What to Consider When Financing a Collector Car

It can take years to save for an antique car. Applying for financing could help make that purchase possible and faster. There are many ways to finance a classic car, including a home equity loan, bank loan or personal loan. But, deciding on the right classic car loan option can be difficult, especially for those who are new to the collecting world.

Here are six factors collectors should have on their radar when financing a classic car:

1.    Credit

Creditworthiness will be an important factor when financing a classic car. Collectors should check their credit scores to better understand their options. Then, they can take steps to improve their score, if necessary.

In general, lenders may consider a higher credit score more favorable, but what qualifies as a “good” score will vary based on the credit score model and lender that uses it. A higher score may also help a collector access a lower interest rate for whatever type of loan is selected.

2.    Down payment

Car loans designed for classic cars through a traditional bank may require a down payment of 10% or more to qualify. Higher down payments often decrease long-term costs, though it can take more time and patience to save up to get that down payment.

A personal loan could offer a classic car enthusiast another financing option if they cannot provide a down payment upfront or just want more flexibility.

3.    Interest rate and loan term

The loan’s interest rate and its term are the two biggest factors that determine the total cost of the loan. A lower interest rate with a shorter term can save the borrower the most money. But a shorter term may also mean a higher monthly payment, compared with the monthly payment for a longer-term loan.

Considering different terms and lenders can help a collector balance the short- and long-term costs to make the best decision for their needs.

4.    Loan-to-value ratio

Auto lenders generally use the loan-to-value (LTV) ratio to determine if a loan makes sense. This ratio divides the total loan amount by the estimated car value and multiplies that figure by 100. Lower LTV ratios are generally better.

Let’s say a collector applies for a $20,000 loan on a car valued at $18,000. The lender likely would not approve that loan because of the high LTV ratio (over 100%). However, a $12,000 loan for the same vehicle would have a much lower LTV ratio (around 67%).

Increasing the down payment on a higher LTV car can help lower the ratio. That strategy may help a collector qualify for financing.

5.    Car condition

A collector car’s general condition can shape the purchase decision. For example, some collectors may prefer a high-quality car, even if it means a higher loan amount and waiting to find their ideal car.

Online value assessment tools, such as the National Automobile Dealers Association and the JD Power price guide, can help determine a vehicle’s condition. And running a car’s Vehicle Identification Number (VIN) can provide context about a car’s repair and inspection history.

6.    Long-term costs

Beyond the loan, a collector should consider other financial obligations that impact the cost of their new car.

For example, collector car owners need specialized insurance to get adequate coverage for their vehicle. Lenders often require proof of insurance before finalizing a loan. And classic car insurance policies may have requirements, such as use limitations and secure storage.

Collector cars can require more expensive parts and maintenance to run smoothly and preserve value. Factoring in those costs can help avoid larger bills that may come with inconsistent maintenance.

The bottom line

Classic car loans can help a fast-track collector’s dream of owning their favorite vintage car. But, before applying for a loan, a collector should consider the upfront price, the car’s condition and long-term costs. That way, they can get both affordability and quality out of their “new” car.

SPONSORED CONTENT

About OneMain Financial

View Website

OneMain Financial is the leader in offering nonprime customers responsible access to credit and is dedicated to improving the financial well-being of hardworking Americans.

Media Contact Information

Name: Sonakshi Murze

Email: [email protected]

Job Title: Manager