Don’t let your head rule your heart: work out how you can afford that buy realistically

The advantage of a classic is is minimal depreciation or even a rise in value, which can largely offset interest charges incurred by taking out a loan

The beauty of going to an established classic car dealer is they can offer dedicated finance and leasing packages

Finance options have never been wider - but choose with great care

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The main reason you’re reading Classic Cars for Sale is because you love classic cars and moreover, you love the fact that most classics don’t depreciate. But does that alter how you finance buying the car you always wanted? Jeff Bailey tells all

The right finance for the purpose

Ok so they depreciate, but a modern car does have one advantage: finance is easy to come by and the choice is plentiful. For instance, that PCP (personal contract purchase) or contract hire dealwon’t be available for a 25 year old classic, or even a newer American vehicle. One of the reasons is because mainstream new car depreciation can be very accurately predicted and the finance company will know within a few pounds what it’ll be worth in 36 months. Not so the classic - there are too many variables to consider; things such as quality of maintenance, overall condition, originality, provenance - they all conspire to make it impossible to make long term predictions. However, enthusiasts know that a popular classic car, such as a Jaguar Mk2, will hold its value and will probably appreciate, which makes it a far better bet than a new X-Type over the long term. That’s all very well, but if you haven’t got the readies, how do you pay for that dream classic? The main thing to remember with finance is that it’s all about two things: the borrower and the goods. A lot will depend on the individual’s credit worthiness, but assuming an average-to-good credit history, the nature of the vehicle and its value will mostly determine where to look for the best finance deal. So rather than look at different types of finance on a stand alone basis, we’ve assessed the most common price groups and show within these which deals makesense and which don’t.

Under £15,000

At this level, without a doubt the best and most cost-effective way to finance a reasonably priced classic is via a personal loan. This is probably the simplest form of finance available and if you have a good relationship with your bank, it is usually a simple matter of either a phone call, a straightforward form or even via the web which will enable the lender to make a quick decision. Usually, a personal loan will be what is called unsecured, which meansthat you will not have to put up a guarantee or any security. Personal loans are available from many sources, but it is always best to start with your own bank. Because of the nature of the competition at present, it is possible to obtain personal loans from other sources such as credit card companies and finance companies. For example, Alliance & Leicester currently offers 6.7 per cent APR on its car loans (online). That means £10,000 will cost you £195.85 per month over 60 months - the same as buying a brand new car in fact.

£15,000 to £25,000

This is where you’ll find some reallydecent classic machinery and alsosome extra help when it comes to paying for them. The personal loan aspect is still possible, but you’ll have to be very friendly with the bank to be able to borrow £20,000 unsecured; the alternative is a Hire Purchase deal. This is the logical progression from the personal loan. Basically, the mechanics of the finance are exactly the same, with the exception of the security aspect. What this means is that the vehicle being financed is used as security for the loan and will appear on the HPI register. As with personal loans, the finance period can be anything between one and five years. Obviously, the longer the period of the loan, the more interest you will pay over the period. At this level, getting a specialist finance broker involved can be a good move, as they have established connections with the finance houses and know the best one for your particular circumstances. Some, such as Mann Island Finance, have schemes in place especially for classic cars. Mann Island’s Graham Ellis says: “There’s sometimes a stigma about HP, but it’s actually a really straightforward way to get you into the car you want without resorting to a second mortgage because acceptance levels can be very high; someone with a decent credit rating can borrow £23k for something like an early Merc 230SL on our scheme without any trouble - and the rates can be as low as 3.9 per cent, so it’s cheaper than many think.”

£25,000 and above

What if you fancy a nice 1994 Bentley Continental R at £45,000? This is where it really pays to get the professionals in. Specialist brokers such as Classic & Sports Finance only handle classics so they are aware of all the pitfalls. Director Robert Johnson: “We know themarket and often warn customers what the finance company will ask. For instance, with the Ferrari F40, the fuel tank will invariably need changing if it hasn’t yet been done and that will add thousands to the bill which would be a nasty shock.” But what about more mundane classics? Robert Johnson again: “We can finance most classics; something like a Mk2 Jaguar is bread and butter, but we recently did a 1904 Darraq, a 1920s Bentley and we can even do racing cars as long as the provenance is good - and some of those are half a million. Frankly, we could even look at a classic commercial such as a 1950s Albion for instance, but we’d need around a 30 per cent deposit for one of those.” Johnson’s main product is the Balanced Payments Finance lease. This is similar to HP, but interest is calculated on a daily basis on the reducing balance. With conventional hire purchase and lease purchase arrangements, the interest rate is fixed at the outset, as is the repayment schedule. With a finance lease, because the interest is calculated on a daily basis, early redemption has no penalty. There are two caveats here, however. Firstly, the interest rate is always variable throughout the contract, so unlike a conventional hire purchase agreement if interest rates rise sharply, then either the repayments will have to go up or the length of the agreement will be extended. Secondly, the minimum amount borrowed must not be less than £25,000. What it does mean though, is that if you want to get into a Ferrari 328 for instance, it shouldn’t be difficult. “That 328 at say £30k, could be on your drive for £564 per month, assuming a couple of granddeposit and 60 payments; and the best bit is that it may even appreciate in value, so at the end of the term you’ll have a valuable asset. That’s more than you could say about a new Honda S2000 at the same price,” says Johnson and we tend to agree. What about extending your mortgage? Sometimes referred to as a second mortgage, this can be suitable for that larger purchase of the car you always promised yourself. As the name implies the loan is secured usually on property such as a house. This has obvious benefits in that any equity in those assets can be released for the purchase, but should there be a repayment problem there is a danger of having the house repossessed.This method of financing should only be used where there is a comfortable amount of equity available and the repayments are not going to be a problem over the full term of the loan. On the other
hand, if you fancy that concoursAston Martin DB5 it may be your only route as repayments can be a set out over as long as 25 years,
which means the monthly amount will be far less than a conventional hire-purchase arrangement. So far, so good, but Johnson warns against the pitfalls:“Financing this way can often be a pain. Firstly you have to get a solicitor involved, then a valuation on your house, then wait for the offer; I’ve known the process to take several months by which time the car you had your eye on has long gone - and who really wants to pay for a car for 25 years?” A fair point; with conventional finance it’s possible to get an agreement in principle meaning you can go searching for that dream car secure in the knowledge that when you find it, you can drive a hard bargain with cash at the ready.

• The Mann Island scheme parameters are
• Minimum age: 10 years old
• Maximum age: Registered on or after 1930
• Max Value: £100,000.00
• Max Loan: £50,000.00
• Max Period: 48 months
• Deposit: Nil if required The vehicle must appear in Miller’s or Classic & Sports Car guides
.
• Must be Right Hand Drive

• Top ten tips
• 1. Use CASH if you can – it’s the cheapest in the long term
• 2. Compare the total cost of the loan including interest - not just the monthly payments when deciding
• 3. Compare like for like and also ensure the deposits and repayment periods are also the same
• 4. For interest comparisons, only use APRs - flat rate calculations vary between lenders but APRs don’t
• 5. Find the best rate elsewhere and use it to bargain the dealer’s rate down. Haggle hard!
• 6. Be aware PCPs require you to pay a final lump sum so make sure you can budget for it
• 7. If you intend to keep the car more than three years, consider straight HP
• 8. Make sure you can easily afford it - getting out of the deal early will cost you
• 9. If you’re refused a loan, you can find out why, but don’t be tempted to use disreputable lenders just because they’ll take you on - it’ll cost you more than that dream classic!
• 10. Choose a deal that strikes a balance between monthly payment and total cost