Data Dive

Will rising interest rates dampen enthusiasm for collector cars?

by John Wiley
12 August 2022 3 min read
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Photo by krisanapong detraphiphat / Getty

Fed chair Jerome Powell likely has too much on his plate right now to worry about old cars, assuming he ever did. But we, of course, worry about little else. So, with the Fed hiking interest rates to fight inflation, it’s high time to determine which vehicles are most likely to be financed with a loan.

There are two concerns here. The first is that, as lending rates rise, vehicles that tend to be financed are more likely to lose value as demand declines. This is, in essence, the same concern you’re hearing throughout the economy—that the Fed’s efforts to cool demand might work too well. The larger worry is that if a significant portion of collectors have borrowed money to buy their cars, they’ll be in a hole should values dip and, perhaps, find themselves forced to sell to keep banks happy. That’s the sort of thing can turn a “correction” into a catastrophe, the likes of which the collector car market experienced in the early 1990s and which the broader economy went through in 2009.

We won’t leave you hanging in suspense here: That house-of-cards scenario does not exist in today’s collector car market. Only 3.8 percent of the cars in Hagerty’s book of insurance business are financed. That’s compared to more than a third of used-car purchases in the United States, according to Statista.com. The share is even lower for classics older than 25 years. These are reassuring numbers, and they correspond with what we’ve heard from industry insiders. Collectors overwhelmingly own their cars outright.


Some vehicles, of course, come in higher than that overall average. No surprise, most of them are newer. The surprising king: The Bugatti Veyron. Nearly 40 percent of the ones on Hagerty policies are financed. For its predecessor as world's fastest car—the McLaren F1—the figure is 23.5 percent. Curiously, the share of Veyrons financed is unchanged since 2019, while the share for the F1 dropped from 33.3 percent over the same period. More than a third of the latest Ferraris Hagerty insures, such as the F8, Roma, and SF90 also carry loans, as do about one in five C8 Corvettes, Porsche 992-generation 911s, newer Vipers, and Bentley Continental GTs. Notably, fewer than 1 in 13 Ford GTs carry a loan—and that share has dropped since 2019.

Only 3.8 percent of the cars in Hagerty's book of insurance business are financed. That's compared to more than a third of used-car purchases in the United States.

On the whole, these are all low numbers considering that some 85 percent of new cars in the United States are financed.

The share of financed vehicles quickly drops as vehicles age and levels off below five percent for most model years between 1960 and 1994. For some model years in the 1920s and 1930s, less than two percent of vehicles are financed.

We paid particular attention to vehicles that have appreciated sharply in recent months and that appeal to younger enthusiasts. You might assume millennials, who have less wealth on hand, might be compelled to borrow money to seize the tantalizing opportunity of a fast-rising "investment." That assumption would be wrong. Take the 1989–94 Nissan Skyline R32 GT-R, a poster child of both youth appeal and rising values. Fewer than 1 in 5 are financed—and that share has dropped since 2019. Its successor, the R33 GT-R, has a lower financed rate of just 1 in 7. The 1993-1998 Toyota Supra Mk IV is nearly half as likely to be financed at just 1 in 12, and that rate has dropped since 2019, too. Perhaps those young enthusiasts, who entered the workforce around the time the banking sector was melting down, learned a thing or two about the risks of borrowing.

Just about where ever we looked, the story was the same. Fewer than 1 in 12 Vipers, which have been tearing up record books, have loans. Among other popular vehicle generations such as early Camaros, Mustangs, and air-cooled 911s, the share with a loan is often between 4 and 6 percent.

Let's not pretend that collector cars, based on this data, are immune from the potential impacts of rising interest rates. If the Fed's efforts to curb inflation go overboard and set off a recession, enthusiasts might be less keen to splurge on the car they've always wanted, and appreciation could slow. Yet what our data can tell us is that collector cars are well prepared to weather any economic storm that comes.

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Comments

  • Greg Anderson says:

    I’d guess that a good number of older collector cars purchased in the last few years are financed but not with bank loans attached to the car.Instead, they are purchased on HELIOCs or else home equity pulled out when re-mortgaging at the rock bottom rates of the last few years.
    That type of financing won’t be attached to the car and show up on the title but it’s still a financed car although not really visible.
    The re-mortgagers who locked in long term at low rates won’t really be affected as their payments won’t change but those with variable rate mortgages will start to feel the squeeze and loan interest on HELIOCs is climbing fast and will definitely put the hurt onto those borrowers. I think there’s a buyers market coming in the next few years, although it won’t be anything like 2008-2010 unless something really unexpected happens.

  • Bostwick9 says:

    This is really not a time to be taking on new debt. Especially for “collector” items.

    Not even for my “dream car” [1960 Comet].

    I’m not that sick.

    • GHobes says:

      Funny thing about timing, as you age all the past dreams become only that. Can’t say a 60’ Comet is my cup of tea but Father Time would tell you find a way before it’s too late.

  • Rick L. says:

    I live by the old adage, “If you cannot afford it, don’t buy it”. If it is a vehicle that you do not need to get to work, a to b, etc… and is only coming out once a week, month, year I would not think folks are not financing them. But then again, some folks take out loans, or put it on plastic, and then expect the government will cancel their debt!!!!

  • Alfred Baucom says:

    Think it would not be advisable to purchase a new auto or collectable auto at this time unless you can pay cash.
    I have been purchasing autos since the late 1960s, always paid cash. Only once, 1986, did I finance a second auto and regretted once I realized what I was paying on loan finance charge. All other autos I have owned or currently owned I paid in full after saving for a purchase.
    Last week I went with a friend to drop off her auto at a Cadillac dealership for maintenance. Asked service person issue with new auto availably. Told any new autos on the lot goes for $15-20,00 above MSRP. Wait list for a new auto…3-6 months.
    My advice…do not finance a new car or classic auto at this time.

  • mattmerica says:

    I am not aware of any Lenders that will finance a vehicle that is NOT a commercial piece of equipment if it is 10 years old or more. People are paying cash – from HELOCs to retirement accounts needing to be tapped to covid relief money (think of a mortgage company owner with 25 employees who got $500,000 in free money when the three best years in the history of the mortgage business were 2019 to 2022 for example) and of course rampant crypto speculation.

    • George Mikhail says:

      I just sold a heavily modified custom 79′ BMW to a guy who financed 2/3 of the price. Last year I sold a 76′ Alfa Spider to a guy who put down 10% and financed the rest. There are companies out there dude that specialize in classics, exotics, and high dollar 7-8 figure Ferraris and will give you whatever you need if your credit and income meet the criteria. I had a long conversation with the loan guy of that last deal I mentioned, he told me that they finance planes, Boats (yachts), artwork, you name it from $5k – $100million. You can get anything financed in this country.

  • Zephyr says:

    The only shock in this article is that 15% of new car purchases AREN’T financed. I would have thought the figure would be more like 2%.

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