What To Do When It’s Time to Pay

Easy to move on when you’re done

"Tell me about your program.” I hear this polite request each day from vintage, exotic, and collector car enthusiasts across the country. I enjoy responding because I know that behind that request is a desire to have a dream car make financial sense. It can, and it is always my pleasure to explain how.

There are many ways to purchase a collector car, including a variety of financing products. Leasing is one option that is extremely popular when buying a car for everyday use, but it is also one that is not often considered when acquiring a collector or vintage car. Of course, as with any purchase, it makes good sense to weigh the pros and cons of all of your financial options. Leasing will allow you to conserve your capital, drive more car than you would with financing, and offer you tax advantages that may not be available to you otherwise.

The lease you would use to obtain a collector car is not the same product offered by a dealer when buying a “daily driver.” In the latter scenario, a dealer will provide a traditional, or closed-end, lease, which provides use of the car for a pre-determined period. Typically, after three or four years, you hand back the keys and hope to avoid charges for excess mileage and wear and tear.

An open-ended lease/purchase program is better suited for a collector car. This type of lease is more like a balloon note finance and allows you the flexibility of financing with the tax benefits of leasing. In this situation you make payments for a period of time and then are responsible for a fixed purchase option amount. At the end of the term, you have the following four options:

• 1. Purchase the vehicle outright and have the title transferred into your name
• 2. Refinance the balance with the leasing company and continue to make monthly payments
• 3. Trade in the car to a dealer and keep any difference above the purchase option
• 4. Sell the car to a private party and keep any difference above the purchase option

Another significant difference between the two leases is the flexibility that the open-ended lease offers you for early termination. With a traditional lease, you are responsible for a stream of payments, and getting out early can be very costly. In an open-ended lease, you have the ability to end your lease early, allowing you to change vehicles as often as you wish. This can be vital for collectors who like to change cars frequently, and in my experience a significant number of them do.

Remember, as with any loan of this nature, it is important that you receive an amortization schedule at the inception of your lease. This will allow you to pay off your lease at any time.

The tax advantages of leasing vary, depending on where you are located. For example, sales tax in most states on a lease is paid monthly as a percentage of your payment. With traditional financing or outright purchase, you pay the tax in advance on the full purchase price of the vehicle. This difference can add up significantly.

Other benefits include taking a portion of your payment as a business expense, and using borrowed funds to free up your capital for other investments, like that 1963 Corvette you’ve had your eye on. Now that makes sense.