Classic Car Loan Alternatives

When looking to purchase your dream car, there are several classic car loan alternatives, but a specialty loan is very often the best choice.  Specialty lenders are familiar with the antique and collector vehicle market, and can offer you attractive interest rates and relatively long terms, which lower your monthly payments.  However, we will take a look at the other ways to manage your antique or exotic car financing here.

 


 

You may be able to go through your local bank for a normal auto loan, but most banks will treat a classic vehicle the same as a typical used vehicle.  You may find a loan officer that is familiar with these types of loans, but most banks are not willing to “step out of the box” when it comes to a collector or exotic car loan.  The loan term will likely be short, and the interest rate relatively high.  Not a good choice! An unsecured personal loan is another possibility, but interest rates are typically high, and it may be difficult to borrow as much money as you need this way. This is probably not one of the better classic car loan alternatives.

Credit cards are very convenient, and many offer very low introductory rates, but these rates are temporary and will become quite costly once the introductory period expires.  They can be useful in the short term, though, while you make other arrangements for your antique or exotic car financing. If you only need the six to twelve months that the introductory rate lasts to pay off the loan, this could be an excellent choice.

A home equity loan or line of credit is yet another classic car loan alternative.  However, many of these loans do not have fixed interest rates, and if the prime rate starts climbing, so will the interest rate you are paying on the vehicle.  It also may not make much sense to put your house up as collateral for a vehicle, no matter how nice or rare it is!

You may also be able to borrow money from your 401K plan.  The interest rate is usually very reasonable, and hey, its your money anyway, right?  Most financial advisers agree that this is a bad idea, though.  The money you borrow will not be able to earn interest and dividends, and it could put a big dent in your retirement.  You normally will only have five years to pay back the loan, or else it will be counted as an early distribution and you will have to pay a large penalty.  Also not one of the better classic car loan alternatives!

Did you know that some companies offer leasing as an antique and exotic car financing option?  The lease payments will likely be low in comparison to many other forms of payment, but leasing can be very complicated.  Depending on how the lease is structured, you may not gain anything from the vehicle’s appreciation.  Make sure you completely understand all the terms of the lease, and all the “What Ifs” that come along with it.

 


 

The most common alternative, of course, is to pay cash for the vehicle.  This is certainly the safest route to go, but in some cases it may not be the most financially savvy thing to do.  If the cash is coming out of your retirement fund, emergency cash fund (you DO have one of those, don’t you?  3-6 months of expenses in a liquid account…), or other investments, then you have to consider the “opportunity cost” of using cash.  In other words, “What could this money be earning elsewhere if it wasn’t tied up in the vehicle?”.

You also have to remember that the vehicle will at the very least need to be insured, stored inside, and maintained.  If you drive it, there may be repair costs also.  Let’s say you are purchasing a $100,000 vehicle, and you have that much cash available.  It may make sense to put $30.000 down, borrow $70,000, and then invest the cash you have left over elsewhere.  You will still reap the benefits of the appreciation on your $100,000 classic car, while your other $70,000 could possibly be earning more than the interest you are paying on your collector or exotic car loan.

The bottom line is that classic car loans can save you money when compared to traditional auto loans or the other classic car loan alternatives, and may even be a wise choice compared to paying cash for a collector vehicle.   For a listing of lenders that specialize in antique or exotic car loan programs, visit my Classic Car Financing Directory. Most of the classic car loan alternatives don’t make sense financially, and you have to consider the opportunity cost of using cash for your collector car investment.

 

 

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