The Pros and Cons of Financing a Classic Car

Classic cars sit in an awkward position with most lenders.

They are not new enough to qualify for standard vehicle finance rates, not depreciating assets in the traditional sense, and they often appreciate or hold value in ways that confuse standard lending models. For self-employed buyers, this creates a dual problem: proving income that fluctuates across financial years while pursuing finance for an asset most lenders do not understand. The solution depends on whether you structure the purchase as car finance or position it differently from the outset.

Why Standard Car Finance Rarely Works for Classic Vehicles

Most lenders limit secured car finance to vehicles under a certain age, typically between seven and twelve years depending on the institution. A classic car falls outside that window, which means the loan either converts to an unsecured personal loan with a higher interest rate or gets declined outright. Lenders price risk based on resale predictability, and a 1972 Holden Monaro does not have the same liquidation certainty as a three-year-old Toyota.

Consider a buyer who operates a consulting business and wants to purchase a restored Ford Mustang valued at $85,000. They approach their bank for a secured car loan and receive an offer at an unsecured rate of 11.5% over five years. The monthly repayment sits at around $1,870, and the total interest paid exceeds $27,000. The same loan amount structured through asset finance and positioned as a collectible or business-use vehicle can attract rates closer to 8% depending on the lender and deposit, reducing both the repayment and total cost.

How Lenders Assess Income for Self-Employed Borrowers

Self-employed applicants are assessed on their most recent tax return or an average of the last two years, depending on the lender. If your taxable income dropped last financial year due to deductions, depreciation, or business reinvestment, that figure becomes the anchor for your borrowing capacity. A strong ABN trading history and consistent BAS statements help, but most lenders still weight the tax return heavily.

This creates a timing problem. If you lodge a return showing $70,000 in taxable income but your business turned over $180,000, the lender sees $70,000. Some will allow add-backs for depreciation and certain business expenses, but not all, and the process requires documentation that many self-employed buyers are not prepared to provide. When pursuing finance for a classic car, this income assessment often becomes the bottleneck before the vehicle type is even discussed.

Secured Versus Unsecured Loans for Older Vehicles

A secured car loan uses the vehicle as collateral, which lowers the lender's risk and typically results in a lower interest rate. When the car is too old to meet the lender's security criteria, the loan becomes unsecured, and the rate climbs. For classic cars, some lenders will still offer a secured loan if the vehicle is comprehensively insured and independently valued, but the pool of willing lenders shrinks considerably.

Unsecured finance is not inherently unsuitable, but the cost difference is significant over a five or seven-year term. A $60,000 loan at 8.5% repaid over seven years costs roughly $920 per month with total interest around $17,300. The same amount at 12% costs $1,060 per month with total interest approaching $28,900. That $11,600 difference is not trivial, particularly when the vehicle itself may appreciate rather than depreciate during the loan term.

Structuring Finance Around Business Use

If the classic car has a legitimate business application, such as use in a wedding hire service, promotional activity, or corporate branding, the loan can sometimes be structured as business finance rather than consumer car finance. This changes the assessment criteria and opens access to lenders who specialise in commercial lending rather than consumer vehicle finance.

Business loans are assessed on turnover, cash flow, and trading history rather than personal taxable income alone. The interest may be tax-deductible depending on the portion of business use, and the loan can include other business expenses if needed. A self-employed buyer operating a media production company, for instance, might finance a vintage Porsche as a prop and business vehicle, structuring the loan through their company rather than as a personal purchase. The repayment becomes a business expense, the interest is deductible, and the vehicle remains a depreciating asset on the business balance sheet even if it appreciates in market value.

Deposit Requirements and Loan-to-Value Ratios

Lenders offering finance for classic cars typically require a deposit between 20% and 40% depending on the vehicle's age, condition, and whether an independent valuation supports the purchase price. A higher deposit reduces the lender's exposure and increases the chance of approval, particularly when the borrower is self-employed and the vehicle does not fit a standard lending profile.

Some lenders will accept the trade-in value of an existing vehicle as part of the deposit, but only if that vehicle is recent enough to have a clear market value. Trading in a 2015 sedan to reduce the amount borrowed for a 1968 Chevrolet Camaro works. Trading in another classic does not, because the lender cannot reliably value the trade without an independent assessment, and most will not invest the time unless the deal size justifies it.

Balloon Payments and Residual Structures

A balloon payment defers part of the loan amount to the end of the term, lowering the monthly repayment but leaving a lump sum due at maturity. This structure can work well for buyers who expect the vehicle to hold or increase in value, as the balloon can be refinanced or paid from the vehicle's sale if the buyer chooses to move on.

In our experience, self-employed buyers using a balloon structure often do so to manage cash flow in the short term, particularly if the business has lumpy income or seasonal variation. A 30% balloon on a $70,000 loan reduces the financed amount to $49,000, lowering the monthly repayment by several hundred dollars depending on the term and rate. At the end of the term, the $21,000 balloon is either paid, refinanced, or settled from the sale of the vehicle. If the car has appreciated, the buyer may be in a better position than when the loan was written.

Independent Valuations and Insurance Requirements

Most lenders financing a classic car require an independent valuation from a recognised body such as the Royal Automobile Club or a specialist vehicle appraiser. This valuation establishes the loan amount and provides the lender with a defensible position if the vehicle needs to be recovered and sold. The cost of the valuation, typically between $200 and $500, falls to the buyer and must be completed before finance is approved.

Comprehensive insurance is also mandatory, and the policy must reflect the agreed valuation rather than market value at the time of a claim. Agreed-value policies cost more than market-value policies, but they protect both the buyer and the lender if the vehicle is written off or stolen. Some lenders will nominate themselves as the interested party on the insurance policy, which means they are notified if the policy lapses or is cancelled.

Refinancing an Existing Classic Car Loan

If you already own a classic car and financed it through an unsecured personal loan or higher-rate facility, refinancing may reduce the interest rate or monthly repayment, particularly if your income has increased or your business financials have strengthened since the original loan was written. Refinancing also allows you to restructure the term or add a balloon payment if your circumstances have changed.

The challenge is finding a lender willing to refinance a loan secured against an older vehicle. Many lenders will not refinance a car loan if the vehicle is beyond their age cutoff, even if another lender originally provided the finance. Specialist lenders and brokers who work with non-standard vehicle finance are usually the only pathway, and the process requires the same documentation as a new application, including an updated valuation if the vehicle's value has changed.

Call one of our team or book an appointment at a time that works for you. We work with lenders who understand classic car finance and self-employed income structures, and we will walk you through the options that match your circumstances.

Frequently Asked Questions