How to Get a Classic Car Loan and What You Need

Securing a loan for a classic car differs significantly from financing a modern vehicle. Classic cars often appreciate in value rather than depreciate, necessitating specialized lending approaches. Understanding these nuances is important for navigating the financing process and acquiring a classic vehicle.

Defining a Classic Car for Loan Eligibility

Lenders categorize vehicles as “classic” based on specific criteria. A common benchmark is 20 to 25 years old, though some definitions extend to vehicles manufactured between 1900 and 1985. Beyond age, a vehicle’s historical significance, rarity, and production numbers contribute to its classification. Some limited-release, newer cars with fewer than 25,000 units produced might also qualify.

The car’s condition plays a significant role in its loan eligibility. Lenders prefer classic cars in good or excellent condition, as this helps protect the vehicle’s value as collateral. Vehicles requiring extensive restoration or considered “project cars” may be more challenging to finance at favorable rates due to higher risk. Appraised value is a factor, as lenders assess the loan-to-value (LTV) ratio to ensure the loan amount is appropriate for the car’s market worth.

Sources for Classic Car Financing

Several types of institutions offer loan products tailored for classic cars. Specialized classic car lenders are a suitable option, as they understand the collector car market, including valuation and insurance requirements. These lenders frequently offer longer loan terms, sometimes up to 180 months, and competitive interest rates, which can result in lower monthly payments compared to traditional loans. Some prominent specialized lenders include J.J. Best Banc & Co., Woodside Credit, and Collector Car Lending.

Traditional banks and credit unions also offer financing for classic cars, with differing criteria and terms. Some credit unions, like Navy Federal Credit Union and Advancial Federal Credit Union, specifically mention classic car loan programs for vehicles 20 or 25 years or older. Many traditional banks may not finance older vehicles due to standard depreciation models. If a traditional bank provides a loan, it might be a personal or secured auto loan with shorter terms (36 to 60 months) and higher interest rates, as they may not fully grasp the appreciating nature of classic cars. Leveraging an existing relationship with a local bank or credit union might offer some flexibility.

Essential Information for Your Application

Preparing a classic car loan application requires gathering details about your financial standing and the vehicle. Lenders review your financial profile, including income, employment history, and creditworthiness. A strong credit history, with a FICO score of 670 or higher, is expected to secure favorable rates and approval. Lenders also evaluate your debt-to-income (DTI) ratio, which is the percentage of your gross monthly income dedicated to debt payments; a DTI ratio of 43% or lower is preferred, with some lenders capping it around 45% to 50%. Providing recent pay stubs or tax documents validates earnings and demonstrates income stability.

Details about the classic car are equally important, including its make, model, Vehicle Identification Number (VIN), mileage, and ownership history. The car’s current condition, including any restoration history, is a significant factor. Lenders often require a professional appraisal to determine the vehicle’s market value, which helps establish the loan amount and loan-to-value ratio. These appraisals typically cost between $100 and $500 and provide an objective assessment of the car’s worth. An independent inspection may also be necessary to verify the car’s quality, safety, and mechanical soundness.

The Classic Car Loan Application Journey

Once all necessary financial and vehicle documentation has been gathered, the application process begins. Most lenders offer various submission methods, including online, in-person, or mail. Online applications provide convenience and quicker initial responses. Some specialized lenders also offer pre-qualification services, allowing you to ascertain potential loan amounts, terms, and interest rates without impacting your credit score.

After submitting the application, the lender will initiate a review process, verifying information and assessing risk. During this stage, lenders commonly request additional documentation or clarification on certain details. This might include further proof of income, additional credit history details, or more specific information about the classic car’s provenance. Lender representatives may conduct interviews to understand your financial capacity and the intended use of the vehicle. Following a thorough review, the lender will issue an initial loan offer, outlining the loan amount, interest rate, and repayment terms.

Factors Influencing Your Loan Offer

Several variables influence the terms of a classic car loan offer, including the interest rate, maximum loan amount, and overall cost of financing. Your credit history and score are key determinants, as a higher score indicates lower risk to the lender and results in more favorable interest rates. Conversely, a lower credit score may lead to higher interest rates or more restrictive loan terms. Lenders assess your credit risk to determine the interest rate you are offered.

The classic car’s appraised value and its condition significantly impact the loan offer. Lenders use the appraised value to calculate the loan-to-value ratio, ensuring the loan amount does not exceed a certain percentage of the car’s worth, often requiring a lower ratio for classic cars. A vehicle in excellent condition with a solid history may qualify for better rates than one requiring substantial work. A larger down payment reduces the amount borrowed and lowers the lender’s risk, potentially leading to a better interest rate and lower monthly payments. While a down payment of 10% to 20% is typical, some lenders may require more, especially for higher-value vehicles. The chosen loan term affects both the monthly payment and the total interest paid; shorter terms have lower interest rates but higher monthly payments, while longer terms reduce monthly payments but increase the total interest over the loan’s life.