Many people dream of owning a classic American muscle car or a sleek vintage Italian sports car, but as with fine wine, vintage often comes at a cost.
Classic car loans could make it easier to own a piece of automotive history. A car loan is a type of personal loan. You borrow a set amount of money and then repay the loan over time with interest, usually in monthly installments. Borrowing from a bank, credit union or online lender may help you finance a private purchase from another collector, or it could potentially let you get a more competitive rate than you could from a dealership.
When shopping for a loan, you may have the option to choose the length of your repayment term. If you’re considering a longer loan term, it’s a good idea to understand all the pros and cons before you sign on the dotted line.
Here’s what you need to know.
You might owe more interest
When you spread your payments out across six, seven or even eight years, your monthly payment could feel lighter, leaving more room in your budget for other expenses like rent, groceries or family activities.
But a lower monthly payment may mean you pay more for your car overall. When you have a longer repayment period, you typically pay more interest than you would with a shorter loan. Even if the monthly number looks appealing at first, the final total at the end of the repayment term might be higher than you’d like.
Your payments may be smaller
In some cases, a longer repayment period might be the one thing that puts your vintage car dream within reach. Even if you could afford a larger payment, a longer repayment term could also offer much-needed breathing room in your monthly budget.
That extra room in your budget could make it easier to handle unexpected expenses along the way. Medical bills, sudden home repairs or changes in employment could all strain your resources. For some, that extra cushion could outweigh concerns about paying more in the long run.
You could find yourself upside down
Adding years to a loan could mean you wind up “upside-down” — or owing more than the car is worth. Although classic cars typically don’t depreciate the way everyday vehicles do, you have to keep them in tip-top condition to preserve their value. If your car becomes too difficult to maintain and you still have several years left on your loan, you could face a tough choice: Continue paying for the loan or sell your car at a loss.
Your car may not work for your future self
When deciding how long to finance a car, imagining your future self might help. Picture where you hope to be in six or seven years. Do you plan to expand your family, relocate or change jobs? Being tied to a loan during a major life change could complicate your options.
Another consideration is maintenance, insurance and storage costs. Are you sure the car is something you want to be responsible for long-term? Even if you have the expertise to do a lot of the work yourself, classic cars can be expensive to restore and maintain. A longer loan term could give you the space in your budget that you need to keep your vintage vehicle in good condition, but it could cost you the flexibility to sell it at a good price if you need to.
It’s important to balance the excitement of a new purchase with a realistic view of your future responsibilities.
Look at the road from every angle
A car loan lasting more than five years might seem like a way to unlock your classic car dream. At the same time, the path could lead to higher costs, less freedom and greater long-term commitment.
Considering the rarity, investment potential and long-term costs of a classic car could help you decide whether a longer loan term might make sense or if a shorter term is ultimately better for your wallet. By weighing the benefits against the trade-offs, you can approach the decision with open eyes and clear priorities.
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