How to finance a supercar

“Let me tell you about the very rich,” wrote F Scott Fitzgerald. “They are different from you and me.” He went on to write a pile of novels based on this very premise. We’re concerned with merely their cars, not their whole psychological terrain, and at Top Gear we’ve always studied at length how different those cars are. But what about the buying of them? Might we assume the very rich, or just the rich, do it differently? Do they turn up at a car dealer, wave a black AMEX card or open a Louis Vuitton bag of fresh £50s, and depart with their chosen supercar paid in full?

Mostly not. By choice they do what the rest of us are pushed by circumstance into doing. They buy on finance. No longer do the wealthy, the footballers, pop stars, lottery winners and other rapidly moneyed blow it all on cars and other essentials of the high life. Nowadays they have managers and advisors who look after their savings for the future, and allow them a fixed monthly spending allowance. An allowance that might look stupendous to you and me, but it won’t buy a hypercar. So they borrow and spread the cost. Successful City types, too, might borrow for a car, expecting to use their financial acumen to divert the capital into another investment that will appreciate while the car depreciates.

“The proportion is much higher than you’d imagine. I’d say 70 per cent of cars over £100,000 are bought on finance,” says Darren Selig. He founded and runs JBR Capital, the only specialist independent firm in the field. JBR (it’s the initials of his three sons) now has a staff of 70. It aims next year to lend nearly a quarter of a billion pounds on cars.

Like the rest of the country’s car buyers, JBR’s customers mostly take out a three or four year agreement. But then they often redeem early. “On average they settle the loan at 22 months. Some just eight months,” says Selig. “People wake up and just want a different car. There’s no rhyme or reason. It’s just a passion.”

About 90 per cent of JBR’s business is used cars. New supercars are mostly covered by what’s called captive finance. The same as you or I buying a VW would get a PCP from VW’s own bank, arranged by the dealer. That’s how car companies make money. Manufacturing cars isn’t actually very profitable, but finance is. They borrow money on the wholesale or bond markets at cheap rates and lend it to us at higher rates. There’s the profit. And their clever finance schemes let them sell more cars, keeping the factories busier, which in turn helps profit. And it’s the same at the high end. The VW Group’s bank also sells finance for its multiple high-end brands. Ferrari, Aston and McLaren have their own captive schemes too.

Every lender has rules about its customers. With Ferrari, a customer can only borrow on a limited number of cars. But it’s well known that to get on the list for a hypercar, you need to have bought a number of the, shall we say, less prized Ferraris, the front-engined V8 GTs. So a buyer might have maxed out his Ferrari finance on Lussos and Portofinos, then finds he has to come to Selig to finance his Daytona SP3.

JBR prides itself on quick decisions. That’s important because, Selig says, “they get bored and change their cars suddenly. Also, these are rare cars and if we don’t say yes quickly they might be sold to someone else”. On a car less than £250,000, they’ll usually give a decision in about four hours. Less if they know you, and actually most of JBR’s business is repeat.

All the loans are individually assessed. JBR takes a view on what the car will be worth at the end of the loan, and that means specialist knowledge. It recruits staff from dealers and auction houses. “If it’s a very specialist car, we know who to call to value it.” Once they establish that value, and the customer’s deposit, they can divide the finance scheme into deposit, monthly payment and final ‘balloon’ payment.

Superstar footballers look to pay a £10,000 deposit, pretty much whatever the price of the car – JBR goes up towards £1 million. Which tells you something about their monthly pocket money: it’s a lot but it’s not unlimited. Certainly it’s but a fraction of their six-to-seven digit monthly earnings.

OK, the technicalities. You probably finance a car on PCP. JBR does something that perhaps looks superficially like that. It’s called lease purchase. As the lender on your PCP would, JBR takes a view on the future value of the car as it will be at the end of the loan, and that’s the final or balloon payment. So you’re dividing up the price of the car into three slices. First is the deposit, second is the part you’ll pay down during the term of the agreement, and the third one is the balloon. (I suspect most people think the monthly payments are just that second part divided by the term, plus interest. But actually every month you have to pay a bit more: an interest only payment on the balloon.) Some people, if they want to keep the car for years, even take out another finance agreement to pay off the balloon.

Famously with a PCP, you’re not obliged to pay the balloon. Instead you can always hand the car back and walk away. The critical practical difference with lease purchase is that you can’t: you’re committed. JBR is in an anonymous office building in a north London suburb. It’s not a flashy dealer and doesn’t want people turning up and cluttering the place with used supercars at the end of their terms.

If you don’t fancy the complications of the balloon, you can do a simple hire purchase. The monthlies are higher, because you pay down the whole amount during the term. After the last of those payments, the car’s yours. With hire purchase or lease purchase or PCP, in fact with any car finance deal except a personal loan or cash, the ownership rests with the lender until you’ve paid it off. You didn’t think you were driving your car did you?

Hang on. If it’s a classic car, it might not be depreciating at all. Might be going up. If the balloon payment really is a reflection of future value, it could theoretically be higher than the price of the car at the front end. So the monthly payments would be in the region of zero. Selig dismisses the happy idea of driving a classic for nothing. “We want the customer to amortise it so they are building up equity. It’s a loan. You need to pay it off.” Anyway, predicting rises in values is a dangerous game. “Classics aren’t for the faint-hearted. Fashion changes so quickly.”

For normal buyers on a PCP, the risk on future value is shared between the borrower and the lender. Normally the balloon is set so that it’ll likely be a useful bit less than the likely value of the car at the end. That way, you can pay the balloon and get back the difference to use as the deposit on your next car. You can see why PCPs were invented by the car companies: they keep buyers on an endless treadmill of new cars. But if the car collapses in value – as has happened with some diesels – it might end up worth less than the balloon. Then you suffer because you have no deposit for the next car. But also the lender suffers, because you’ll likely walk away, lumbering them with an asset that won’t realise the value they need to pay off the capital.

But with lease purchase, the risk lies entirely with the borrower; they can’t dump the car and walk off. It’s another reason JBR does lease purchase and not PCP: JBR’s sources of capital aren’t interested in ‘residual risk’. As always, removing risk lowers the cost of borrowing. Selig emphasises that JBR generally sets the balloon low. It raises the monthly payments but lessens the risk of the car being worth less than the balloon the customer has to pay. He wants repeat business.

Right now though, values are doing the opposite. There’s a price bubble. Selig mentions several reasons why. New cars are in short supply, as production was cut during COVID-19 and now there’s the chip shortage. That pushes up used values. Since Brexit, you have to pay tax on imported cars, so there’s a premium on cars located here. As the country goes electric, he says “buyers want the last petrol car hurrah for their collection”. And finally, “the wealthy are just bored. They haven’t been spending for two years so they are now”. New Rolls-Royce Cullinans and Lamborghini Uruses could be had at five-figure discounts in early 2021. Now they’re above list. Of course only two of the factors Selig has named, Brexit and the arrival of EVs, are long term. The rest will blow over. Anyone who thinks expensive car values will stay buoyed up is kidding themselves that the boom won’t cycle into bust, as booms always do. Burned fingers ahoy. Selig has seen it all before, and resists raising his balloon payments in these overheated times.

Many borrowers have what Selig calls “significant collections”, so they understand this. Newer buyers with shallower pockets – this is all relative – who he calls “aspirational” will probably get a deal calculated on an even lower, safer balloon. Every scheme is tailored to both the car and the buyer. “We always say, ‘Who’s asking the question?’” There’s a finance calculator on JBR’s website but it’s strictly a guesstimate. It doesn’t know who’s asking.

Because there’s no typical customer. “The only common thread is they all have a passion for cars. They’re either high net worth or high earning. Entrepreneurs, TV personalities, half the England football team, sometimes people in the City. None of them are buying cars they actually need. It’s a fruitless task to apply logic to high value cars.” His job is to understand the illogical sentiment, and how that affects the cold hard cash.