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Financing A Classic

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Financing A Classic
Financing A Classic
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We’d guess the main reason you’re reading Classic Motoring is your love of classic cars and moreover, you love the fact that most don’t depreciate. Compare that to the way most modern cars simply shed value as soon as you leave the showroom and continue downwards until they’re scrap value. This can work to your advantage come time to finance a new one if you buy the right car with the right deal.

THE RIGHT FINANCE FOR THE PURPOSE

A modern car, however, 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 deal generally won’t be available for a 25 year old classic. 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’ time.

Not so the classic – there are too many variables to consider; things such as quality of maintenance, 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 not only hold its value, but will almost certainly appreciate, which makes it a far better bet than a new XF 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? Jonathon Oliver of Primary Finance Solutions says the main point to remember with finance is that it’s all about two things: the borrower and the goods.

“A lot will depend on an individual’s creditworthiness, but assuming a good credit history, the nature of the vehicle and its value will most determine where to look for the best finance deal. Some modern classics such as the Porsche 911 993 series from 1994 are now rising fast, so it is even possible to get a residual balloon on some of these which helps keep monthly payments down.”

RISING MARKET

What about special deals for classics which take into account a rising market? Jonathon says these are pretty much restricted to the professional collectors: “These deals do exist, but they only make sense when the numbers are very big – effectively hedge funds for high end classic cars, which use equity in the vehicles rather than cash.

Basically, they have more similarities to art than machinery. For the rest of us though, rising values do have benefits because this makes underwriting a deal easier for the lender; if they can see your Austin-Healey 3000 is conservatively rising 15 per cent a year, then that adds comfort.”

“Basically, everything is ‘underwritable’ and there are virtually no restrictions on vehicles that can be funded; it all comes down to the balance of credit profile of the Neglecting your new classic will determine its end value borrower and reward for the lender – get these right and there are some good deals out there.”

The main lender requirements on a finance deal for a classic or modern classic is for a professional valuation on the vehicle in question in order to determine its worth, a minimum deposit of 20 per cent and a maximum term of four years. Everything else is pretty much negotiable. A recent example was a £75,000 early 70’s Porsche 911S underwritten over four years with a 40 per cent residual balloon – a similar deal to buying a brand new 911, due to the very strong value appreciation of the older car.

In light of this, we’ve assessed the most common price groups and show within these which types of finance make sense and which don’t.

UNDER £15,000

At this level, without a doubt the best and most cost-effective way to finance a mainstream classic is the personal loan. These are available from many sources, but it is always best to start with your 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.

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 telephone call or a straightforward form, which will enable them to make a quick decision. Usually, a personal loan will be what is called unsecured, which means that you will not have to put up a guarantee or a security.

£15,000 TO £25,000

This is where you’ll find some really decent classic machinery and also some 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.

Basically, the mechanics 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.

£25,000 AND ABOVE

At this level, a popular 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 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 borrowed must not be less than 25K.

What it does mean though, is that if you want to get into that Ferrari F355 for instance, it shouldn’t be difficult and the best bit is that it’s definitely appreciating in value, so at the end of the term you’ll have a valuable asset. That’s more than you could say about most modern new cars.

REMORTGAGES

What about extending your mortgage? Sometimes referred to as a second mortgage, 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.

Remortgages should only be used where there’s a comfortable amount of equity available and repayments are not a problem. But, if you fancy that DB6 it may be your only choice as repayments can be a set out over as long as 25 years, which means monthly payments will be far less than a normal HP arrangement.

However, 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; the process could take several months by which time the car you had your eye on has long gone – and who wants to pay for a car for 25 years?

A fair point and emphasises the fact that when it comes to funding a classic, no two finance deals are the same.

TEN TIPS TO MAKING THAT DREAM REAL

1 Use cash if you can – it’s the cheapest in the long term and once done it’s done

2Compare the total cost of the loan including interest – not the monthly payments

3Compare like-for-like and ensure that the deposits and the repayment periods are all the same

4For interest comparisons, only use APR or Annual Percentage Rate. Flat rate calculations vary between lenders – APRs don’t

5 Find the best rate elsewhere (it’s a very competitive market) and use it to bargain the dealer’s rate down

6 Be aware that PCPs (Personal Contract Plans) require you to pay a final lump sum so make sure you budget for i t or you’ll lose the car

7 If you intend to keep the car more than three years, then consider straight HP

8 Make sure you can comfortably afford it – getting out of the contract early costs…

9 If you’re refused finance, you can find out why, but don’t be tempted by dodgy lenders just because they’ll t ake you on – it’ll cost dearly in the long run

1 0Choose the deal that strikes a balance between monthly payment and total cost. And do your sums first!



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