Unlocking the value in collectible cars

The age-old adage is that a car starts to lose value from the moment it leaves the showroom. But for collectors, luxury and rare cars can prove to be a shrewd investment as well as a passion.

Before proceeding, it is important to differentiate the financings covered in this article from the embattled retail car finance industry. This article does not consider general retail motor finance provided to consumers at the point of purchase. Instead, it focuses on loans provided by private banks, specialist lenders, private credit institutions or auction houses secured by “collectible cars” – that is, vehicles which are no longer in production, of a high value, made by iconic car makers and, usually, already owned by the prospective borrower. 

We hope this introductory article will be useful to any collectors looking to unlock the value of their collectible cars without having to see them roll across an auction block or surrender the keys after a sale. We will outline some of the key considerations for borrowers when offering these prized possessions as collateral, such as market sentiment, the due diligence process, likely lender requirements and exiting a loan.

A preliminary note is that the value of collectible cars can be volatile, driven largely by market sentiment, meaning that loans secured against them are often seen as riskier than lending against traditional assets such as property and even share securities. There are therefore fewer lenders in this area, who are specialised and tend to offer loans at higher interest rates and with lower loan-to-value ratios than other secured loans.

Market sentiment

McKinsey estimated that at the end of 2024 there was €800 billion of collectible car stock worldwide[1]. With recent significant market investments from global auction houses – such as Christie’s acquisition of Gooding & Co in late 2024 and Sotheby’s taking full control of RM Auctions in 2022 – there is confidence that the market will continue to expand in the future. In the short term, persisting economic uncertainty has seen a drop in buyer confidence, resulting in a negative impact in the UK market for collectible cars. Hagerty (publisher of a UK Price Guide) notes the “post-lockdown boom had pushed prices too high, and buyers were voting with their feet” leading to a fall across all of their indices. However, in a positive sign, they have noted that sell-through rates, ie the rate at which stock is sold, are up “ten points since last summer.”[2]

Due diligence

Before advancing a loan, lenders will typically go through a due diligence process, not dissimilar to the process they might follow for any other asset offered as security. This includes establishing ownership, value, authenticity, insurance and satisfying themselves with car-specific considerations, eg roadworthiness, licensing, history (including provenance), tax and export status and any alterations, restoration or other work that has been carried out on the car.

For UK registered, roadworthy collectible cars, lenders will look to a car’s V5C logbook as well as any information relating to the car’s ownership including transfer agreements and auction contracts. While cars can be sold without a logbook, this can have a negative impact on values. Manufacturer-specific documents – such as the iconic Ferrari ‘red books’, sometimes known as “Classiche binders” – will also be of interest to lenders, since they can affect the value and saleability of the cars (which lenders will take into account in the event of an enforcement).

Before advancing funds, lenders will normally appoint a valuer to assess a car, which may involve turning the engine or driving it. It is therefore imperative that prior to being valued, all service history information, details of any restoration or amelioration works, MOT certificates, registration or brand specific documents are available and ready to be shared with the lender. These should ideally set out the definitive and unbroken ownership and status of the vehicle. Any issues can impact on the value assessed, which will in turn impact whether the lender is prepared to advance funds against the asset and how much may be available for borrowing.   

Lenders’ requirements

Owners should be mindful that lenders will also have strict requirements regarding the access, use, storage, maintenance and insurance of secured vehicles, which will remain in place for the duration of the loan. These requirements help ensure that the value of the vehicle is maintained, that there are sufficient insurance proceeds available to repay the loan if the car is damaged or stolen, and to ensure that the lender’s security remains valid and enforceable.

• Lenders will typically restrict access to and use of the cars offered as security; preventing them from being driven, moved or worked on without the lender’s prior approval. Owners may therefore want to consider, before offering their classic car as collateral, whether the lender might permit any potential exhibiting or racing of the vehicle. Whilst displaying the car in public could positively influence a car’s value, this will need to be balanced against the possible security, legal and practical risks to the lender of allowing the transportation or driving of the asset.
• Secured cars will normally not be able to remain stored with the borrower, in part because the lender’s security will typically be a pledge rather than a mortgage. Unlike a mortgage, a pledge requires the car to be in the lender’s possession to be enforceable against others. Possession can be actual, ie with the lender storing the car itself, or constructive, where a specialist third-party storage facility will store the car on behalf of the lender. Whilst lenders will exceptionally agree to the secured asset remaining with the borrower, generally, unless the vehicles are held directly on the lender’s account, there will be an agreement between the borrower, lender and the storage company. Under this, the storage company agrees to hold the car for and on behalf of the lender and to restrict access or removal of the vehicle without the lender’s consent. Any access will normally need to be arranged in advance and require a representative from the lender to be present.
• In order to avoid depreciation in the value of a collectible car, lenders will also usually require confirmation that regular maintenance is undertaken by appropriately qualified experts.
• Insurance is another key consideration for lenders, who will need to ascertain that the cars are adequately insured in terms of quantum, with an acceptable insurer and for appropriate risks. Lenders will often also have further requirements to increase their control and reduce the risk of the borrower invalidating the policy. These may include composite insurance (where separate single policies are effectively established for the lender and borrower’s insurable interests); noting the lender’s interest on the policy (and requiring insurers to notify the lenders of the occurrence of certain events affecting the policy); or designating the lender as first loss payee (entitling them to receive proceeds of any claims prior to the borrower).
• Often, car collections can be located in various countries across the globe, whether for the owner’s convenience, to be exhibited or to access specialist mechanics. The country in which the car is located will typically determine the laws which will govern the lender’s security.

Depending on the nature of the loan and the lender, the lender’s recourse may be limited to the value of the collectible cars provided as security. Some lenders may, however, also require the borrower to provide personal guarantees or other security to support their loan. Borrowers should be certain as to what their ultimate risk is and ensure that this is agreed with a lender early on in the process.

Repayment

The above points are just a few of the considerations for any collector to bear in mind before using their valuable car as collateral, but borrowers should also consider how they intend to repay any loan. In most financings, cars will not be generating income, and will require maintenance, insurance and storage at considerable cost (which will all be at the borrower’s expense and to the lender’s satisfaction).

Therefore, borrowers should consider at the outset how they plan to repay the principal amount of the loan, and to service any interest (which will typically be payable during the lifetime of the loan). Servicing or capital payments may come from many sources, including increasingly from the proceeds of investment of the loan monies into a securities portfolio or other assets, or from the ultimate sale of the car.

Borrowers should also be mindful that if there is a default, (eg where the borrower is unable to repay the loan on the repayment date, or they otherwise breach the terms of the facility agreement), the lender will be entitled to demand immediate repayment of the loan. Ultimately, if the borrower cannot repay, a lender will look to enforce its security over the car, in most cases by selling the car.

Conclusion

Notwithstanding the risks, utilising valuable collectible cars with good history and documentation as security for a loan can be an attractive option for some borrowers. Once terms are agreed, our team would be happy to advise on the necessary legal process and documentation.

Please note:

• This article highlights some of the issues that borrowers should consider. There are different issues for lenders, particularly legal and regulatory matters, which are beyond the scope of this note. If you are a lender and are interested in collectible car financing, please do contact us – we would be very happy to discuss these issues with you.
• As solicitors, we cannot assist with procuring financing.
• This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

[1] Source - McKinsey & Co Collectible cars: From niche market to growth and innovation engine | McKinsey

[2] Source – Hagerty “The Current State of the Market: Down but Not Out”

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, June 2025