We all have our “grail” car. You know, the one we have pictures of up in our sheds and as our phone wallpaper (for me, a Singer Porsche, F40 and NSX-R are at the top of the list). We also know, as revheads, that (other than the last 12 months,) cars are generally a massive cash sink – money will be “wasted” on rego, insurance, mods, servicing, and especially fixing broken stuff.

Even so, not every car you buy depreciates. In fact, some enthusiast vehicles appreciate in value over time. You may be flipping through online classifieds and finding enthusiast vehicles with certain mods cost more used than the equivalent stock cars new.

The original Subaru WRX “Colin McCrae” rally car in blue can go for a pretty penny in the Australian market; the Porsche 911, BMW M3, and even the home-grown Ford Falcon XR8 FPV can be found on the market for more than market value of new, equivalent vehicles. Anything with a HSV badge will also be highly collectible in the future, when the marque leaves the Australian market altogether.

You may look at your finances and think that these vehicles are out of reach. However, with some canny selecting and looking at spreading payments over time by obtaining a seven-year loan instead of the usual five years, you could find yourself on to a winning investment strategy – as far as buying cars go!

Seven-year car loans

Seven-year car loans are exactly what you think they are – a car loan with a seven-year term. Usually, car loans are spread out over five years. As the loan is spread out over a longer term, your monthly (or regular) repayments are comparatively lower; so, you may be able to take out a larger amount than you would in a five-year loan scenario.

If you can afford $800 per month to put toward your loan, you could borrow $56,000 over five years, instead of $42,400 if you spread the payments over three years.

Managing Director of automotive finance broker Savvy and car enthusiast Bill Tsouvalas says, if done right, this can be a wise way to go. “If you are a petrolhead and you know the car you’re buying will appreciate in value over time, a seven-year loan is something to consider. There are risks though – you will be paying more in interest, as a matter of course. Also, if your car doesn’t appreciate for whatever reason, you could find yourself ‘underwater.’”

Underwater or upside down: either way, it’s not good

When a loan is underwater or upside-down, it means the remainder of what’s owed is more than the market value of the car. If you decide to sell and can’t settle the debt with the proceeds, you’ll have to shell out of your own pocket to make up the shortfall. Though this doesn’t happen often, it’s a risk you need to be aware of.

Other considerations

The car you intend to finance must also not be older than 15-20 years when the loan is concluded. Seven years is a long time – and you need to consider your future too. Will you need to buy a house? Pay for kids’ schooling? This can affect your finances.

You’ll also have to do due diligence when buying from a private seller; check the car’s VIN with the Personal Property Securities Register, so you can assure yourself and your lender the car isn’t stolen or a write-off.

If you do find that a seven-year loan isn’t working out for you, you can refinance the loan with a shorter term. You may be able to negotiate a lower interest rate based on good financial standing. “Even if you do, you need to be prepared for higher repayments,” Tsouvalas says. “Paying out the loan in total could also work if you have the cash, but some lenders might slug you with early termination fees. You should talk to a broker or financial professional before making any hard decisions.”

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