Getting a loan for a luxury car is a lot like getting a regular car loan — but at a much higher amount. With loans of this size, you might have trouble qualifying unless you have strong credit and can prove you can afford the monthly repayments.
How to finance an exotic car
You have a few options to choose from when it comes to financing an exotic car:
- Exotic car loans. A handful of lenders like Woodside Credit and JJ Best offer financing specifically for buying an exotic or luxury car. This typically means longer terms, higher loan amounts and services tailored toward luxury cars.
- Traditional car loans. These tend to have more competitive rates than a lender that specializes in luxury financing. But you might need to have bullet-proof credit and a high income to qualify for a loan amount that high.
- Business car loans. Business car loans come with payments structured around your business’s cash flow, and some don’t even require a deposit.
- Dealer financing. Most dealerships offer a financing option when you purchase cars from them, though these tend to come with higher rates than third-party lenders. To up your bargaining power, you might want to consider getting preapproved with another lender before hitting the dealership.
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How do luxury car loans work?
An exotic or luxury car loan works by offering larger amounts and longer terms than your typical auto loan. Most luxury cars start at $40,000, which many conventional car loan providers don’t cover.
Terms typically start at around two years and can run as long as 12 years. Rates run around 6.99% on the longest terms, though it depends on the type of dealer, car and your personal finances.
Should I get a 12-year car loan?
Possibly. The ideal customer for a 12-year loan term is someone who knows luxury, exotic and classic cars well. Certain makes and models increase in value over time, which can help you turn a profit.
To get the most out of it, invest in a low-maintenance car. And try to find a way to pay off your loan early — usually by selling the vehicle at a show or auction.
But 12-year car loans aren’t for everyone — that’s a long time for interest to add up. If you know what you’re getting into and understand the risks, you may be able to finance an exotic luxury car for far less than you would have paid in cash or with a smaller loan.
How to compare exotic car financing
Beyond loan term, fees and repayment options, you’ll want to keep an eye out for:
- Fixed or variable rate. Would you prefer a stable monthly payment, or are you willing to take a gamble on a fluctuating interest rate that could be lower down the road?
- Secured or unsecured. Do you want to use your new luxury car as collateral to get a lower rate, or pay a little extra to avoid losing your exotic wheels?
- Flexibility. Look for a lender that allows you to pay off your loan early with no fee and has customer service with a strong reputation
Can I qualify?
Eligibility requirements vary by lender, but in general you must:
- Have good or excellent credit. If you want an unsecured loan, you’ll likely need to have near-perfect credit to be eligible for a loan of that amount.
- Have a low debt-to-income (DTI) ratio. You generally can’t qualify for any loan with a DTI over 43%, though it’ll likely need to be much lower for a luxury car loan.
- Make enough to afford repayments. Lenders for loans of this size often require you to have an income nearing six figures.
How to apply
Although all lenders are different, here’s some basic information you’ll need when applying for a loan:
- Personal information. This includes your name, Social Security number, credit score and proof of identity.
- Employment information. Be prepared to provide details about your income, employer and the length of your employment.
- Financial information. You’ll likely be asked details about your assets, credit score, debts and liabilities.
- Vehicle information. Make sure you know the make, model, condition and price of the vehicle you’re interested in purchasing before applying.
- Business information. If you plan on using the car for business, have your company’s revenue, time in business, assets and other information on hand.
Since you’re borrowing a large amount, your credit score needs to be high with a near-perfect payment history. Lenders are unlikely to extend a loan to someone whose score and history don’t reflect upstanding financial decisions.
Benefits of working with an exotic car lender
On top of offering financing designed specifically for buying a luxury vehicle, here are a few other perks of working with an exotic car lender:
- Knowledgable about the market. Lenders have a unique knowledge about the market and might be able to even walk you through the buying process.
- Possible profit. Some luxury cars can actually increase in value over time, earning you a profit.
- Made for exotic cars. Most traditional car loan providers offer loan amounts and terms that aren’t ideal for an exotic or luxury car.
- Lower immediate cost. Taking out a loan can lower the immediate cost of buying an expensive vehicle — meaning you can put that money toward other potentially profitable investments.
Drawbacks of exotic car lenders
Consider these potential drawbacks before taking out an auto loan from an exotic car lender:
- Restrictions on car types. Some luxury car financing companies will only work with certain makes and models, so your options are still somewhat limited.
- Potentially higher rates. There’s less competition between exotic car lenders, which can lead to less-favorable interest rates and higher fees.
- Risk of depreciation. There’s no guarantee that your car is going to increase in value — there’s still a chance it’ll depreciate.
- Fewer options. There are simply fewer exotic car loan providers out there — and not all are available in every state.
4 mistakes to avoid with luxury car loans
Thinking of financing a luxury car? Here are a few mistakes to avoid:
- Small down payments. A hefty down payment helps reduce the cost of the loan and lower your monthly payments.
- Adding one-time costs into the loan. Some lenders might let you include the taxes and cost of vehicle registration in your loan, but remember — anything added to your loan balance gains interest.
- Not comparing your options. A luxury car shouldn’t be a spur-of-the-moment purchase. Take your time to review your loan options and your finances to be sure you can handle the payment schedule.
- Long terms. Unless you’re buying your car as an investment, going for an extra-long term might not be worth the extra interest.
Most popular luxury car brands in the US
These luxury car brands are known for their speed, power and reliability. Some even cost as low as $35,000 for someone with a budget on their mind:
- BMW. One of the most well-known German car brands, BMW produces luxury cars around the world. Whether you want style, eco-friendly features or handmade design — remember, BMW owns Rolls-Royce — you can find it with BMW.
- Audi. Another German company, the much-renowned Audi is owned by Volkswagen and is among one of the top sellers of luxury cars around the world. Audi offers a few financing options to get behind the wheel of one of its luxury vehicles.
- Lexus. Under the luxury division of the Toyota brand, Lexus was once known for stuffy, conservative designs but has recently reemerged with the intent that users Experience Amazing. You have a few financing options if you’re interested in buying a Lexus.
- Mercedes-Benz. The top-selling luxury car brand of 2016, Mercedes-Benz is known for beautiful design and great engineering, and the price you pay reflects it.
- Porsche. Also owned by Volkswagen, Porsche is even more luxurious and glamorous than its Audi counterpart. Best known for its sport cars, it also offers trendy coupes and stylish SUVs. You could get a loan to buy a Porsche with Porsche Financial Services directly, or consider an auto loan from a separate lender.
- Acura. Part of Honda, Acura produces luxury vehicles that are sleek and powerful. Models range from sedans to SUVs, and the Acura NSX is a sports car that screams exotic design.
How luxury cars affect insurance rates
Usually, a luxury car means higher insurance. According to Insure’s 2017 survey, the average annual premium of the top 20 luxury cars cost between $3,000 and $4,000. Luxury cars are worth more, which means they cost more to insure should they be damaged or stolen.
However, as with all insurance, your driving record and location impacts your annual premium, as will your credit score. Once all of these are taken into account, you may see a bump in your premium, but it may not be as costly as you expected.
When you’re ready to buy a luxury car, finding financing is a vital step you shouldn’t overlook. Most cars are bound to depreciate, so understand how much you’re paying and how much debt you’re signing up for before you take the plunge.
Speak with a financial adviser and compare your car loan options carefully until you’re sure you’ve found the best deal available.
Frequently asked questions
Can I get an exotic car loan with bad credit?
It’s possible, but the best rates are typically given to people with the best scores. Someone with a credit score of 720 or higher will likely have an easier time finding a luxury car loan than someone whose score is in the high 600s.
What is the average loan term for a luxury car loan?
You’ll find car loans with terms as short as two years and some as long as 12 years. However, the average new luxury car is financed for around five years. Shorter terms are usually preferable to save money, but consult your financial adviser to determine which loan length is appropriate for you.
Is there a luxury tax in the US?
No. A luxury tax on vehicles over $30,000 was instated in 1991, but was rescinded in 2002.
Can I get an auto loan to buy a classic car?
You could. Some auto lenders are willing to offer loans for classic cars, but with stricter requirements. You might have better luck with a personal loan.