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How Does Exotic Car Financing Work?

How Does Exotic Car Financing Work?
Austin Kilham

Austin Kilham

Updated June 1, 2022
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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
You’ve probably imagined yourself behind the wheel of a Lamborghini, cruising in a Maserati, or putting the pedal to the metal in a red Ferrari. Exotic cars are typically low-slung sports cars, often with an arresting design, and a price tag to match. What does it take to afford to buy one of these cars? If you’re among the lucky few, you may have cash on hand to buy one outright, otherwise you have the option of financing an exotic car with an exotic car loan. 

What Is an Exotic Car Loan?

An exotic car loan is typically much larger than a conventional auto loan. Depending on the vehicle you’re interested in, you could expect to pay $100,000 for a new exotic on the low end, and up to $400,000 or even half a million dollars on the high end.(The price of a conventional new car topped $47,000 at the end of 2021.)Exotic car loans tend to be offered by specialized lenders who have expertise in the field. This knowledge often helps them act as an advisor to you as you consider your purchase, which can be especially useful if you are buying an exotic car for the first time.

Is Long-Term Exotic Car Financing Available?

Banks, credit unions, and other lenders typically offer auto loans in increments of 12 months, usually from 12 to 84 months. Some lenders will even offer conventional loans for as long as 96 months, which is equivalent to eight years.Because exotic cars are often so much more expensive than conventional automobiles, lenders will often long-term exotic car loans. Some may even offer exotic car financing for 144 months, or 12 years. 

Exotic Car Loan Requirements

Loan terms of up to 144 months mean your lender is forced to carry a lot of risk over a long period of time. As a result, interest rates for exotic car loans can reach as high as 10%. Borrowers with excellent credit scores—in this case, it could mean a credit score of 740 or above—are more likely to secure lower interest rates from lenders, which can significantly lower the cost of purchasing an exotic vehicle. Borrowers with less than excellent credit may have to come up with higher down payments to help offset some of the risk the lender is assuming. This can be quite a bit of money. For example, if you’re asked to make a 10% down payment on a $400,000 vehicle, that’s $40,000 you’ll need in cash upfront. Lenders may also take a look at your loan history. They want to be sure that you’ve successfully financed something as expensive as an exotic car in the past. They may not want to offer you a loan if you only ever financed much smaller purposes. They may want to know about your income and other assets to make sure that you have the means to pay off your loan.  

Exotic Financing Pros

When weighing whether or not to finance your exotic car purchase, there are of course pros and cons to consider. Here’s a look at some of the benefits of exotic are loans.

Getting a New Car

When you finance a exotic car, you can get the car you want immediately without having the cash on hand. 

Opportunity Cost

Even if you do have the cash, financing is worth considering. The potential gain you would have made from choosing one of those other alternatives is known as opportunity cost. How does opportunity cost apply when buying an exotic car? Well, if you decide to make the purchase in cash, that is money that’s no longer in your nest egg—it’s no longer available to you for any other purpose. When you finance a purchase, you are able to hang on to your assets and use them toward other goals, such as investing, or purchasing a home.

Investment Leverage

Exotic cars potentially don’t depreciate in the same way that conventional vehicles do. In fact, they may gain in value. When you finance, you could potentially increase your return on investment if you’ve only paid for a small portion of the car and you then sell it for a profit.

Exotic Financing Cons

There are also potential downsides to financing an exotic automobile.

Interest Payments

Whenever you finance a purchase, you’ll have to pay interest on the car loan, and interest can significantly increase the overall cost of your purchase. For example, if you buy a $100,000 car at a 6.5% interest rate over 84 months, you’ll end up making nearly $25,000 in interest payments. 

 Credit

Taking out a loan to make an exotic car purchase can increase your debt-to-income ratio (DTI). Lenders may look at DTI to determine how stretched you are when it comes to your financial obligations. A higher DTI suggests you have fewer resources to devote to debt payments, which may make it harder for you to take on new credit. 

Depreciation

While some exotic cars are worth more over time, that’s not a guarantee. It is possible that your car will begin depreciating, meaning it is worth less over time. And that could even put your loan underwater, an unfortunate situation in which your car is worth less than the amount remaining on your loan.

Pros and Cons of Exotic Car Financing at a Glance

Exotic Car Financing Alternatives

Financing a vehicle isn’t the only way to put yourself behind the wheel of an exotic car. Here’s a look at some of the alternatives, including refinancing. You’ll want to read up on the pros and cons of refinancing a car.

Cash

Buying a car with cash is the cheapest way to purchase a vehicle since it precludes interest payments and fees. When you’re trying to save money on a car purchase, cash is usually recommended.However, purchasing an exotic car may require a lot of free cash on hand. If you decide to go this route, it’s important that you also maintain enough liquidity to cover your other financial obligations. 

Traditional Lease

You may also be able to lease a new exotic car. A lease agreement gives you access to a car for a fixed period of time, during which you agree to make regular monthly payments for use of the vehicle. 

Used Lease

Used car leases function in much the same way as a new car lease does. However, your lease payments may be determined based on the used car’s sales price and residual value, which may make used car leasing a cheaper option. 

Subscription Service

A car subscription is similar to leasing in that you can access a car for a set period of time for a monthly fee. However, terms tend to be shorter, more flexible, and may allow you to swap your car out more easily for another one. Subscription services tend to cost more than a traditional lease, but they also offer other perks. For example, they may include insurance and maintenance costs. 

Refinance

If you’ve already bought an exotic car, you may choose to refinance your loan to decrease the cost of your payments. When you refinance, you replace your old loan with one that has more favorable terms or a lower interest rate. When’s a good time to refinance an auto loan? If your credit improves or interest rates drop, you may qualify for a loan with a lower interest rate. That said, before you dive in, familiarize yourself. For example, one disadvantage is that fees can add to the cost of refinancing, potentially negating whatever savings you’d receive from a lower interest rate. 

The Takeaway

Exotic car loans help you finance the purchase of automobiles that are more expensive than traditional cars. You may want to approach a specialty dealer, and to secure the more favorable terms and interest rates, you’ll need a healthy credit score and debt history. In the future, you may look into refinancing your loan if you feel you could qualify for a better interest rate. To learn more about your options for refinancing an auto loan, visit Lantern by SoFi.
Photo credit: iStock/Firstsignal
The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.SOLC0222033

Frequently Asked Questions

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About the Author

Austin Kilham

Austin Kilham

Austin Kilham is a writer and journalist based in Los Angeles. He focuses on personal finance, retirement, business, and health care with an eye toward helping others understand complex topics.
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