Buy your dream
car with someone else's money!
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?
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.
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
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
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
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
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 is the
CEO of Buyer Services International LLC.