Should you get a loan for a classic or exotic car as an investment?

Exotic & Classic Car Investments

You love the idea owning that classic or exotic car that you’ve dreamed about since you were kid, but you’re likely wondering if it’s a good investment and whether you should borrow money in order to buy it.

Now that there are more financing options available for classic and exotic cars, many people are considering buying a cool set of wheels in order to cash on the significant increases in value the collector car market has seen over the last several years.  But what are the risks and benefits of financing a classic or exotic car investment?

The returns on classic cars

According to the Knight Frank Luxury Investment Index, classic cars have increased in price over 500% in the last decade. That’s significantly more than you would have gotten by investing in the stock market, which generally provides returns
around 6% to 7% per year.

The Haggerty Group estimates that there are around 5 million collector cars in the U.S. and data shows that the value of those collector cars is expected to increase.

Still, if you intend to buy a classic car as an investment it’s important to do your homework. Some cars are surging in value while others are flailing, For example, early models of the Porsche 911 are currently skyrocketing in price while other models like the Thunderbird convertible are leveling out or falling in valuation. When investing in a collector car, it’s important to do your research so that you buy a car that’s likely to perform well – both on the road and as an investment. 

The cost of financing a classic car

In the past, it wasn’t possible to finance collector cars or exotic cars. That’s because most traditional lenders were wary about giving loans for classic cars since they weren’t experts in the collector car market. Normally, auto loans assume that cars depreciate over time and so the older a car is the less likely that a traditional lender will be willing to finance it. Since traditional auto loans often use the car as collateral, many lenders felt that there was too much risk involved in the classic car market since they weren’t sure of a car’s valuation.

But in the last few years, a small handful of lenders who understand the classic car market have begun offering financing. Most classic car lenders require that buyers put a down payment on the car of anywhere between 10% and 30%. The loans offered can either be secured loans or unsecured loans depending on your particular credit and financial history, as well as the lender you choose. Most collector car loans require that the buyer have good to excellent credit, although there are lenders like Collector Car Lending who have loans aimed at those with fair credit and scores as low as 600.

With classic car loans, the term length of your loan can vary depending on the lender, but can be as short as 24 months, or as long as 120 months. The interest rate ranges also vary significantly from lender to lender, although there are several companies who offer rates as low as 2.19%. These loans often have maximum borrowing amounts that can be as high as $100,000 or even $750,000. These websites breakdown the financing scenarios in detail:

– LendingTree (https://www.lendingtree.com/auto-loans-index)

– Autotrader (https://classics.autotrader.com/classic-car-resources/finance)

– LendEDU (https://lendedu.com/blog/best-auto-loans)

The risks of investing in a classic car

Like with any investment, investing in a classic car comes with certain risks. One of the big things to keep in mind is that the collector car market might be poised for a downturn. According to Hagerty Group, of the 5 million collector cars in the U.S., about 50% are currently owned by baby boomers and the average age of collector car owners is around 56 years old.

As these car owners age, that might mean that they will be selling off their collections. That could flood the market and reduce prices on certain car models. It’s also not certain whether another generation will start purchasing the cars boomers have been collecting. Since generation tends to want to collect and preserve the cars that they lusted after when they were younger, whether Millennials or Generation X will be interested in cars currently deemed ‘classics’ remains to be seen.

Another risk with investing in classic cars is that unlike an investment in the stock market, you can crash your car. It’s important that you properly ensure your car if you’re going to buy it as an investment, but not all insurance plans compensate the owner for lost value if a car is involved in an accident. That could greatly affect your investment.

Before you jump into the market and become an owner of a classic or exotic car instead of putting your money into the stock market, make sure you do your homework and make an informed purchase. If you decide to go ahead with it, remember that you can enjoy your car while you own in even if it doesn’t increase in value. You can’t do that with a stock certificate!