#classic car loans
Lenders are making it easier than ever to get behind the wheel of your dream machine
Contrary to what members of the general public must think, most enthusiasts don’t build their collections by cruising the big-dollar auctions in search of only the most perfect and desirable cars, throwing greenbacks around in front of the television cameras. No, the majority of us just don’t have that kind of a budget for our hobby, if we have a budget at all. With our modest disposable income, we buy restoration candidates rather than finished cars–sometimes because we get great satisfaction out of the work, but other times because there’s no other financially feasible way in. Or we may learn to love that rusty six-cylinder, four-door sedan, though we lust in our hearts for the pristine V-8-powered convertible that lies far beyond the reach of our savings accounts.
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For most of the history of the collector-car hobby, that’s the way it’s been: Your choices have pretty much been shaped by the diameter of the bankroll in your pocket. But a growing number of collectors are turning to a new alternative, signing on the dotted line for loans of anywhere from five to 12 years to get into the driver’s seat of their dream cars right now. Over the past several years, a number of lenders have begun offering specialized collector-car financing, catering to the needs and interests of collector-car fans. You supply the good credit rating and your John Hancock, and they’ll do the rest.
“Americans like to leverage their credit,” said Mark Schechter, vice president of Woodside Credit of Newport Beach, California, which advertises itself as the fastest-growing collector-car lender in the U.S. “There are far more people who can enjoy the hobby with attractive financing. It’s fun to support the hobby. We’ve seen it grow tremendously.” Since the company began offering loans in the summer of 2003, “it’s been good. We’ve grown tremendously year after year,” Schechter said.
So, who’s doing the borrowing? The younger generation of car enthusiasts, apparently. “For older collectors, it was a cash hobby. They believe that if you can’t pay cash for something, you shouldn’t be in it,” said McKeel Hagerty, chief executive of Hagerty Classic Insurance of Traverse City, Michigan, which partnered with Woodside in July 2005, to offer financing to its customers. “People in their 30s and 40s are more comfortable making payments for everything, frankly. There seems to be a psychological difference.” Hagerty knows that at least 10 percent of the 500,000 vehicles his company currently insures are financed. “We know that it could be as high as 20 percent, and our guess is that the world is sort of changing.”
Companies like Hagerty and Woodside were reacting not only to this perceived shift in the attitudes of the nation’s estimated 3 million to 4 million classic car fans, but to the general unavailability of loans for collector cars, as well. Generally, in the eyes of traditional lending institutions, cars are things that depreciate as they get older, which means that the older the car, the shorter the term and the higher the interest. In fact, many flatly refuse to consider loaning money for the purchase of any car more than eight or 10 years old. “If you call your local bank and say, ‘I want to finance a 1932 Chevy,’ they’re not going to have any idea of what it’s worth, so they’re probably going to say no,” said Mark Hyman, whose collector-car dealership, Hyman Ltd. Classic Cars of St. Louis, Missouri, sells about 300 cars a year. “Most local banks aren’t prepared to loan against vintage vehicles.” The exception seems to be the small, local bank that knows its customer well, and will consider making the loan on the customer’s ability to pay, rather than the market value of the car.
Because banks so often say no, collectors who have needed to finance their purchases have generally turned to that great, gushing money fountain known as the home equity loan. Consumers have tapped the paper appreciation of their homes’ values to pay for everything from plasma TVs to laser eye surgery, so why not the occasional De Soto or Thunderbird? “Initially, business was quite slow,” Hagerty said. “We’re all fighting against the almost free money that everybody’s been given in the form of equity in their homes over the past few years. As interest rates have started fluctuating back up and getting more, shall we say, sober, we feel that the time is right for this (collector car) product moving forward.”
Home equity loans can offer attractive interest rates, as well as the benefit of tax-deductible interest. There are drawbacks, too. Using a home equity loan to buy a car ties up funds that might otherwise be used for a kitchen remodeling or other project that would add value back into the home. Then there’s the wisdom of using your greatest asset, your home, as collateral for your hobby. Default on a car loan, and the car is at risk; default on your home equity loan, and things get more serious. And home equity loans are often at a variable rate, compared to the fixed rate, simple interest loans that classic car lenders offer.
The kinds of cars these companies are writing paper for might surprise you. Though all offer loans of a half-million dollars or more, the average loan is solidly in five-figure territory. Hagerty estimated that most of his company’s loans are in the $30,000-$100,000 range; Albert Maranda, finance manager of J.J. Best Banc Co. of New Bedford, Massachusetts, one of the country’s leading classic lenders, puts the average amount at $20,000. In fact, J.J. Best and Classic Car Financial of Bedford, New Hampshire, will be happy to make loans of as little as $6,000, while Capital One Auto Finance of Plano, Texas, sets its minimum loan at $7,500. For Hagerty and Woodside, the minimum loan is $10,000.
Lenders are comfortable offering generously long terms, up to 12 years in the case of Woodside, Hagerty and J.J. Best. Why? Because, generally speaking, these companies know that collector cars increase in value over time, reducing the risk in lending. “A $50,000 loan with Woodside is $600 per month, because of the long term,” Schechter said. He noted that Woodside’s founder, Roger Kirwan, pioneered this type of loan in 1980, helping customers buy recreational vehicles with loans of up to 25 years. The extended terms don’t mean that borrowers are keeping their cars 12 years; because there’s no prepayment penalty, borrowers can sell their cars at any time and pay off the loan. Naturally, rates tend to vary from lender to lender. We heard quotes of 7 percent to 9.7 percent, depending on the health of the applicant’s credit, so it may pay to call around. Required down payments vary, too, from zero to 20 percent. Loans are made on a simple interest basis, so borrowers pay interest only on the outstanding amount, calculated each month. For a $25,000 loan at 8.2 percent interest over five years, for instance, the monthly payment works out to $510.33.
One thing you will find does not vary is the lenders’ insistence that all financed cars be titled and fully insured. In fact, J.J. Best’s Maranda noted that most repossessions occur not because the borrower has fallen behind in the payments, but because the owner hoped to avoid sales tax, and failed to have the car titled. Lenders need to be recorded as lien holders on the titles to protect their investments.
Most lenders will want to have a look at the car, at least to be certain that its VIN matches its title. J.J. Best employs a nationwide company whose inspectors verify each VIN, take photos, and even start and run the car. Woodside, which works primarily through collector-car dealers, expects them to vouch for the cars they’re selling. Buyers may be asked to have the car appraised, if its value deviates too much from the norm, but the cost of the appraisal can generally be built into the loan.
One caution: If you’re calling to ask for a loan to buy that decrepit Duesenberg your aged neighbor has finally agreed to sell, you may hear crickets chirping on the other end of the line. Neither Woodside nor Hagerty offers loans for restoration projects, although Hagerty is considering entering that business. J.J. Best will consider financing a project, with a number of caveats. “When it comes to something like that, credit is very important to us,” Maranda said. No one wants to see a project stall halfway through; “It’s very hard to repossess pieces,” he said. There are alternative ways to finance a project, though; for example, short-term, interest-only loans can cover until the car is completed, at which time they can be paid off through a collector-car loan.
Nor is every car eligible for financing. Take a late-model Corvette, for instance. If every driver in the house has his or her own car, and the Corvette is only to be used for pleasure driving, it’s likely to qualify. But if it’s the only vehicle in the household, or will be in use as a daily driver, the answer is going to be no.
There’s never been a better time to be involved in the classic-car hobby, and ownership of an older, interesting car has never been easier. Collector-car financing is yet another entry point into this wonderful hobby of ours. Only you know if it’s the right doorway for you.
J.J. Best Banc Co.
60 North Water Street
New Bedford, Massachusetts 02740
141 River’s Edge Drive, #200