Impossible you say? Well, more and more people are looking to finance companies to help them buy their dream car. Are these people foolhardy or do they know something you dont?

Whether you have the cash in the bank or not, many collectors are choosing to finance their new purchases through lenders like Banks, Specialty finance or even Mortgage Companies. We thought we'd take the time to talk a few different lenders to gain a clearer picture of what is involved and why, if it does, make sense to use someone else's money to buy your dream car.
 

Are there advantages to using a specialty lender over your bank?

Well for one think you'll be dealing with lenders who know classic cars, and their values. As a result you will generally be able to get a longer term on the loan perhaps 5-6 years against the usual 3 years from a bank! And that's IF a bank will even consider it, most banks don't like to lend money on classics; they preferring used cars less than 6 years old.

Currently the rate from most classic car lenders varies between 6-9% although some will charge as much as 20%! The things that will make a difference are the amount of money you want to borrow, how long you want to pay it back and of course your previous credit history.

Check your credit score with someone like Experian.com or Equifax.com. If you score over 700 you should be ok - anything less than 600 you going to have problems. Certainly if you've had a recent bankruptcy or you have a lawsuit pending forget about the car for now!

The lender will want you to fill in an application with your name, address, employer, salary, make, model and year of the car, whether or not you own a house etc. plus other personal credit information and they will want your permission to run a credit history check on you.

Essentially, the loan will be given based on your credit status, as you are the primary source of repayment (or at least your paycheck is!). Secondly they'll look at the collateral - i.e. the car you want to buy and thirdly, they look to your other assets like your home.

You may be surprised to learn that the main source of competition for specialty lenders is not from banks, but from mortgage companies and home equity loans - interest rates so low right now that if you are a home owner they REALLY make sense and the great thing is no one asks you what the money is being spent on!
 

What is the downside to borrowing money to buy your dream car?

Having the bank place a lien on the title to the vehicle until such time as the loan is satisfied.

If you finance through a bank or specialty lender you will be required to carry comprehensive insurance on the vehicle for the period of the loan, as well as pay to have the car inspected by a company like www.AutomobileInspections.com before the loan is fully approved.
Many lenders will only make the check payable to the seller of car, but mail it to you the buyer. Others may send the check directly the seller whether they are a dealer or private individual. One word of caution here, be careful when working with a lender, because some lenders insist that the buyer and the seller meet face to face. Clearly this can be cost prohibitive if you are contemplating a long distance purchase - so be sure to ask.

Out of the 50 states in the union, 8 do not issue titles for older collectible cars. With the vast majority of lenders No title means no loan, as a lender needs to attach themselves to title, so it the car has no title  - chances are you won't get a loan. Check whether the car you are interested in has a current title and if do, ask the seller to fax or email you a copy of it just to be sure before you try to get your loan.  Incidentally, most lenders can move VERY quickly when it comes to giving you money. Most specialty lenders to me that typically, it only takes around 3-5 days from the time you complete the paperwork until you have the check in your hand!

Lenders will typically lend you 80% of the cars value, but depending on your credit may raise that number by 10-12%, and incidentally, there is no limit as to how much you can borrow - it's tied to what your credit file will bear. Many people will get themselves pre-approved for a loan - and then go to an auction or shop the classifieds.
 

What about Leasing, does it work for Classic Cars?

In general the whole leasing thing is misunderstood. Firstly, most people assume that leasing is only applicable to new vehicles, which is not true. Another common misconception is that you get "locked into" a lease agreement and there is no way out until the end. Finally, it is commonly believed that once you fulfill your lease that you have to walk away from the vehicle and you are left with nothing to show for all the payments you've invested which is also not true.  

Most often we hear about leasing from New Car Dealers but it is not uncommon for people to lease used vehicles, especially those vehicles with a higher re-sale value.

Specialty lenders realize that most collector cars depreciate at a much slower rate, or in some cases actually appreciate, which ultimately results in a strong equity position for the client at the end of the lease agreement. 

Some of the reasons you should consider leasing your specialty vehicle include;

• Being able to enjoy drive a car that is in  "# 1" condition instead of "# 3" with the same payment.
• Being able to easily change cars at the end of your lease and try a different classic if you want to, (so why pay a higher payment from month to month?)
• Being able to use the lease as a tool to maintain a lower payment throughout the term and then re-finance the residual value, as a new loan at the end.
• Many states charge a "use tax" on the monthly payment which creates a tax benefit for those who choose to lease.

By the way, did you ever wonder which are the most popular cars financed? - Camaro, Mustang, Chevelle, GTO and Corvettes (plus exotics of course).

So the question remains does it make financial sense to borrow money to buy a classic?  Well, generally if you 'buy right', the appreciation of the vehicle will equal or better the interest you're paying on the loan. With the interest rates on home equity loans around 4-5% right now and some cars like Auburn Speedsters, Camaros and GTO's almost doubling in value in the last twelve months - you do the math!  

Jeff Webster

Jeff Webster is the CEO of Buyer Services International LLC.