How does classic car finance work?
As with standard car finance, there are two varieties of classic car loan. The two types include:
With a personal loan, you’ll receive the money up front from a lender. You’ll then have more freedom to shop around for a car of your choosing. You’ll enter a repayment plan with the lender, paying back the loan in instalments.
HP or PCP Finance agreement
You can apply to enter a finance agreement with a registered seller. Here, you’ll agree to pay back the loan over a set period of time.
You’ll likely have two options when purchasing a car from a registered car dealer or seller. These are called Personal Contract Purchase (PCP) and Hire Purchase (HP) and both options have different advantages and disadvantages.
Personal Contract Purchase
With a PCP agreement, you’ll effectively rent the car from the seller. You’ll pay monthly instalments to use the car as your own for a set period, usually a few years. Once this time period is up, you can either buy the car outright for the remaining value owed, called a balloon payment or return the car to the seller.
These agreements can be beneficial if you need to keep your monthly payments to a minimum and don’t plan on owning the car outright, but you are locked into your payments and can usually only drive the car for an agreed amount of miles per year, without paying an additional mileage sum at the end of your agreement.
With a hire purchase agreement, you pay a deposit upfront for the vehicle. You’ll then agree to pay a certain amount per month as part of your contract. Once the full value of your car is paid off, you’ll own it outright.
You won’t be restricted to a certain amount of mileage as with a PCP agreement and you will eventually own the car should you pay off your agreement. However, repayments are generally more expensive.
The money you borrow from the lender will either be a secured or an unsecured loan. A secured loan is secured against something you own, usually a house or similar property of high worth. If you default on your loan, the lender can take ownership of your property as payment. An unsecured loan is not secured against anything but tends to have higher monthly payments.
It’s important to remember that purchasing and owning a classic car is an expensive venture. You should be certain you can afford your loan repayments and any insurance you will need for the car before making an agreement with a lender.
If you fail to meet the monthly repayments on a secured loan, you could end up losing your home.