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How To Finance A Kit Car

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Maybe you loved building LEGO trucks as a kid or spent hours constructing toy model Formula One cars as a racing-obsessed teen. As an adult, that hobby can take you into building kit cars — especially luxury kit cars. Much like those models you built as a kid, a kit car is a car that is sold as a kit that you can assemble yourself.

The average cost for a kit car is roughly $30,000 to $40,000, according to Dave Smith, Owner of Factory Five, the largest kit car manufacturer in the United States. You can find many for less (around $19,000), whereas souped-up racing replicas cost even more.

While kit cars can get expensive, there are a variety of ways to finance a kit car if you decide that you want to pursue the hobby. Most people, however, opt to pay cash for a kit car. Read on to find out more about how to finance a kit car.

What is a kit car?

First, the basics: a kit car — also referred to as a component car — is a car sold as a kit of parts that the buyer puts together. Usually, the significant mechanical systems of a kit car are taken from other cars or purchased new from vendors. These include items like engines and transmissions that you can buy from a variety of places that range from custom builders to junkyard pick-and-pulls, places where you rummage around a junkyard for parts that will fit your needs.

There are many things to consider when building a kit car, including sourcing and paying for parts, dealing with the assembly, and figuring out how to pay for it all. The advantage of building a kit car is that you can largely customize it to any spec you want – all it takes is money.

Before you begin building the kit car of your dreams, you’ll need to obtain the necessary parts at a cost that won’t break the bank. There are many ways to go about this.

Find a “donor” car. Kit car enthusiasts say that the cheapest way to obtain the parts you need is by purchasing a “donor car.” A donor car is a vehicle that may no longer be in road-worthy condition but has salvageable parts that you can repurpose on the kit car. It’s a common practice to source a donor car from junkyards and private sales. Donor cars can be any make, model or vehicle year. Donor vehicles should be in decent running condition, with functional suspension, brakes, controls, steering, and other components.

Component kits. If cost is less important, and simplicity is the goal, a popular option for building a kit car is to buy a DIY kit of a component car. This is for hobbyists looking for a more comprehensive way to build a car. Smith says the most popular kit car in the United States is a replica of the Shelby Cobra — a slick sports car made famous by Ford Motor Company’s celebrated designer Carroll Shelby in the 1960s. Only a few hundred Cobras were built, and originals cost a whopping $2 million at auction. A replica Cobra kit can cost anywhere from $25,000 to as much as $60,000. According to Smith, there are roughly 25,000 Cobra replicas on the road today.

Most kit car kits are made up of everything you need to build a car except the engine, transmission or rear end (essentially, the running gear). These critical components can be found in many different ways, to ensure you’re getting the exact component you need. For example, those building a kit Mustang can buy necessary parts directly from Ford Performance. Most “build-it-yourself” car kits provide parts from the basic chassis (frame) and body all the way up to suspension parts, steering, and hundreds of fasteners etc. No matter what kit a person is building, like many custom car projects, builders get their own running gear. Customers can build their custom Cobra replica or Hot Rod with a used engine from an existing (donor) vehicle like a Mustang or Corvette or they can buy a new “crate” engine from the likes of Ford Performance, GM Parts and Mopar. Transmissions and rear differentials are also fairly easy to source from Ford and GM as well as from “donor” cars or as new parts from automotive aftermarket suppliers like Moser, Currie and Tremec transmissions.

From a safety and engineering standpoint, Smith believes that it is better for a company to provide more parts than less, so that the parts are engineered to work together. The entire “custom component car” industry is very similar to the custom kit plane industry as there is a vibrant, creative and knowledgeable hobbyist culture in our country who build custom machines.

“Most parts of the car come in a big box,” explains Smith. “It’s actually safer to get all of the parts from one place rather than cobble parts together from a variety of sources.” In these DIY boxes, there are, on average, about 4,000 parts waiting to be assembled. This way, you know the parts are in working order and meant to be used together.” He explains how Factory Five’s success has come from making the project of building your own custom car a lot easier by doing the hard engineering work for you and providing more, rather than less parts. Nevertheless, the extent to which a person uses donor parts and custom parts is still part of the challenge and part of the fun. “We just make it easier and more convenient,” he says.

Smith adds that most of his clients are baby boomers with disposable incomes, which translates to more cash to spend on a kit car. For many, it’s more convenient to buy an all-encompassing kit than to try to find the pieces themselves.

“They don’t want to go to a junkyard and get rusty parts,” he says.

But others, he adds, may prefer to buy a base kit which includes fewer components, allowing the customer to purchase them separately.

“You can get a Mustang engine at the junkyard for $1000 versus a brand new one for $10,000 or $12,000, so you can save quite a bit of money by doing it yourself.”

If, however, the DIY aspect is less than enthralling, other types of component cars include assembled vehicle kits, which are kit cars built by an individual or business that is not a major car manufacturer, hand-built vehicles and high-performance race cars. Smith says these types of kit cars aren’t as common, and they are more expensive than a DIY kit car.

“And that kind of knocks down the market pool right there. To have a finished car built usually starts around $60,000 and it can quickly go well above $120,000. Many of these cars have $10,000 and $20,000 paint jobs on them so they become really valuable, collector cars in many cases.”

How much does a kit car cost?

When it comes to buying a kit car, prices start in the $30,000 to $40,000 range. Some kit cars, Smith says, can be purchased used for less money on eBay and Autotrader Classics (a quick eBay search for “used kit car” turned up a 1966 replica Shelby Cobra for $23,000), common platforms for sales of specialized cars and parts.

As for insuring one of these vehicles, Smith explains that it’s fairly simple and not very expensive. He is a fan of such insurance companies as Hagerty, USAA, and Amica. He stresses that after a customer builds his or her own custom kit car, you must have it inspected, follow registration guidelines, pays the appropriate taxes, and get a VIN assigned to it by the state DMV. Once that has been done, the vehicle can be insured like any other vehicle – with the cost of insurance commonly based on the same metrics as vehicle value, the owner’s driving history, driver’s age, location, etc.

“These are cars that people don’t typically drive every day. And they’re not the type of cars that get stolen. A custom car is too unique. There’s just no market for stolen, custom cars.”

Wondering where to store a kit car? Most are simply stored in garages. Kit cars and collector cars are treated very similarly. Only about 5% of Factory Five’s customers actively compete and race in their kit cars, usually as participants in drag racing, autocross, or road racing. The rest Smith says, are street driving cars – parade cars, car show cars, or what’s called weekend cruisers – rides that are just fun to take for a spin on a sunny Saturday.

As for street legality, if you’re building a car for yourself, you’re allowed to build a kit car in almost every state. As a hobbyist, you get an exception on emissions. Once you’ve built the car, you take it to your state police to have it inspected for safety and to ensure it was assembled properly. Once that happens, the state will assign a specialized VIN number to a custom-built, hobbyist-build car. That number will go into the national database the same way it would as if, say General Motors, built it. If you want to learn more about VIN numbers and what they mean, check out our story, here.

“If you build your own airplane, the government wants to make sure that it’s safe and it doesn’t fall out of the sky,” Smith says. “So you have to get it inspected and you have to put it through some procedures to make sure it’s safe. The same thing applies if you want to build your own car.”

How to finance a kit car

When it comes to financing a kit car, Smith explains that most of his customers have paid cash, used equity lines of credit, or even a cashed out 401(k) to pay for their dream kit car. While that’s not necessarily the most recommendable way to finance a kit car there are a few options.

They include:

  • Home equity line of credit: You can use a HELOC to finance a car or, really, anything you want. It’s a line of credit secured by your home that to use for large expenses or to consolidate higher-interest rate debt on other loans you may have such as credit cards. HELOCs offer a good way to take equity that you have in your home and apply it towards something else. You pay a HELOC back the same way you pay any loan back. These often have a lower interest rate than some other types of loans, and the interest may even be tax deductible.
  • Personal loan: A personal loan could be a good way to finance a kit car since most of these kinds of loans have no restrictions on how you spend the money. Though its worth noting that personal loans do tend to have higher interest rates. These types of loans offer competitive fixed rate, fixed term, and fixed monthly payment. They are easy to apply for online, and you can often get your funds very quickly.
  • Classic car loans: In some cases, you might be able to get a classic car loan to finance a car, since some kit cars do become collector or classic cars. You can often find these types of loans through a credit union, which offer loan terms of up to 12 years, along with competitive interest rates.
  • Specialized lenders: There are some specialized lenders like J.J. Best Banc & Co., that offer financing for kit cars, as well as antique, classic, exotic, hot rod, muscle and sports cars.With good credit, rates can vary from 6% to 12%. J.J. Best Banc & Co. gives financing for most model vehicles ranging from 1900 to 2013. LendingTree has a simple, auto loan calculator to assess how much you can afford.

Smith says that kit cars tend to be a bit of a challenging industry because he sells to customers who have to pay cash for an extremely pricey item. He says that he wishes there was a better way to finance kit cars, like a short-term bridge loan or even a more conventional auto loan.

The bottom line

Scores of hobbyists around the country have a ball tooling around in replica race cars and built-from-the-ground up hot rods. However, they can be pricey upfront, with very few financing options. If you have a lot of cash burning a hole in your pocket, a kit car may be a ton of fun. It can be an expensive hobby, though, so be sure you understand the costs before shelling out thousands of dollars.

 

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