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Car Corner
Classic Car Math

July 1, 2017
By Scott Lewis

Last year I introduced you to the world of Classic Car Financing. It is quite easy, and rewarding to buy a classic car on credit. Some of the benefits are:

  • You can get a lot nicer car than you could afford to buy for cash.
  • Even if you have the cash, it leaves your cash more liquid in case of life emergencies.
  • Since classic cars [usually] appreciate you should never be upside down on your loan.
  • You can get a complete car instead of a project you are likely to loose interest in.

This month I want to focus on the REAL COST of financing a classic car. I know it is unlikely, but I was curious if you could find a break even point, where the car is appreciating in value so that you are owning it (temporarily) for free.

We will start by finding a reasonably priced classic car, and look at how much it has gone up in value over the last few years. We will project that forward (I already here you complaining... this is not about investment, just a ballpark of what is possible). We are hoping for a MODEST increase... just enough to justify the buying of a classic car to the wife (for those of you that have one of them).

Next we will look at the interest rates for some of the classic car loans available, and compare the amortization tables for a loan against the possible increase in value. This will tell us how much it really costs to own a classic.

For this discussion we are not going to include insurance or maintenance costs. Those are real, but classic car insurance is much cheaper than standard insurance for a regular car. The idea here is that if you were looking for a second car to enjoy anyway... you can sell the wife on a classic because it is cheaper to insure than... say... a used Porsche 911 or used Miata.

I am going to use a 2nd Gen Camaro I was watching for a while as an example.

1970 Camaro RS/SS, Green over Green, 350, Auto w/ Console - $27,500

I looked this up on Hagerty and found that this car went up about $2,500 (in good condition) to $3,500 (in excellent condition) over the last 3 years. We will use the more conservative number and assume for this article that this car will increase another $2,500 over the next three years.

Collector Car Lending listed 8.50% - 9.50% financing on a 10 year loan for a person with the lowest credit score (it's just an estimate, contact them for a quote). For the sake of argument we will use the worst case scenario... 9.5%. Here is how our loan looks:

Purchase Price
Sales Tax Rate (TX)
Sales Tax
Title & License (est)
Sub Total
Down Payment
Loan Amount
Loan Rate
Loan Years
Monthly Payment
$27,500
6.25%
$1,718.75
$200.00
$29,419
$5,000
$24,419
9.50%
10 (120 payments)
$315.98

How much will we pay in total?

Down Payment
36 Monthly Payments
$5,000
$11,375.28

Total out of pocket $16,375.28

To complete this exercise we assume we can sell the car for the $2,500 increase in value... $30,000. Let's see how that works. Checking an amortization table shows that after 3 years there would be a balance of $19,332.70.

Sale Price
Loan Balance
Remaining Cash
Total out of pocket
$30,000
$19,332.70
$10,667.30
$16,375.28

Net Out Of Pocket: $5,707.98

So we failed to break even on this experiment. Did we lose? I do NOT think so. We bought a classic car and enjoyed it for 3 years and only spent about $5,700.

Think of it another way... we leased a classic car for $158.56/month. This is a LOT better than even a cheap, regular used car.

Of course, the real reason for selling the car would be to buy another classic car. Now we have $10,600 or so in cash. That makes for a larger down payment if you want to get an even nicer classic the second time around.

Can you break even, or make a profit this way? No. Unless the car you buy goes up in value better than the loan rate. Our car went up 8.3%, over 3 years, while we were paying on a loan of 9.5% with COMPOUNDED interest. Good luck finding a car that increases in value that much.

Conclusion

If you were remotely thinking about a classic car, you have to give this some serious thought. The person that told me about this owns a restoration shop, and he told me he has seen way too many people buy an inexpensive classic with the idea of putting money into it over time. All too often they fail, and end up selling a project car for a loss.

I am going to finance my classic.

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