Consortium or car financing: which pays more?

Are you thinking about fulfilling your dream of buying a new car, but you can't pay for a vehicle in cash and you don't know which path to choose? Follow this article and find out what pays off the most? do a consortium or car financing?

Buying a car is a decision that needs to be studied calmly.

The model, type of vehicle and accessories included must be carefully chosen so that the driver's taste and all needs are met.

But, it is much more important than defining the details of contracting this service and carrying out all the appropriate calculations and defining the best way to purchase the car.

Currently, most vehicles in Brazil are purchased through financing. After all, few people have the money to pay in cash.

Sometimes, even those who have it, choose to pay in installments.

However, this is not the only way to buy a vehicle, after financing, the most used way to purchase an asset is consortiums.

In this article we will show you more about both possibilities and explain better how each one works and its advantages and disadvantages to help you make the choice that best suits your needs.

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Consortium

The vehicle consortium works through a group of people who come together to acquire an equal asset.

In the case of the vehicle consortium, the main idea of ​​this formation is to promote mutual help for the purchase of cars for each of the members.

Consortiums are managed by companies specialized in the area, which use the funds received from all members to promote letters of credit for the purchase of the vehicle.

Basically, a financial institution sets up groups with those interested in forming the consortium with pre-defined card values.

According to the established value, the value of the installments to be paid is stipulated, and they do not charge any interest rate.

But don't think you will be exempt from paying extra amounts.

Typically, an administration fee (less than the financing fee) and another reserve fund fee are charged.

Furthermore, the installments of the amount paid monthly in a consortium tend to vary according to the market, that is, if you entered into a consortium for a car that costs X, with installments of value Y and, halfway through, the value of market for this vehicle increases, its installments also increased.

To be able to purchase the vehicle, the consortium member needs to be included, that is, the participant needs to be selected at random among all the others to be able to receive the letter of credit and thus purchase their vehicle.

Every month, a number of customers are covered, already pre-defined in the consortium's membership contract.

The most common thing is that one or two credit cards are drawn per month.

And the awarding of a consortium member can happen in any of the months within its duration.

In other words, if the consortium lasts 48 months, the person can be selected in the first or 48th month.

If you can afford it, it is interesting to anticipate receiving the letter through a bid.

They are used to buy the right to receive the letter of credit and work like auctions, the participant who places the highest bid wins.

It is worth mentioning that the amount used in the bid will be used to pay off part of the missing amount of the installments.

Advantages of the consortium

• The fees are lower, and you pay around 20% more on the value of the vehicle;
• It is possible to join groups that are being formed or that are already underway. In the latter case, the consortium time is reduced.

Disadvantages of the consortium

• You cannot purchase the vehicle immediately, you have to be drawn or place a bid;
• Giving up on participating in a consortium group is not simple. Normally, it is necessary to pass the quotas on to someone else;
• Although not many documents are required to join a consortium, when it comes to receiving the letter the requirements can be great;
• The value of the installments may fluctuate according to the value of the vehicle in question. Suffering considerable increases in many cases.

Consortium indices

The consortium market has been growing steadily for some years.

To give you an idea, in the first quarter of 2019 alone, there was a 24.6% increase in consortium membership, when compared to the same period of the previous year.

According to ABAC – Brazilian Association of Consortium Administrators, there was a 13.3% increase in demand for the service, and until the month of March this year, around 654 thousand shares were sold, reaching an average value in credits of more than R$27 billion.

In the light vehicle consortium segment alone, almost 302 thousand quotas were sold in the period from January to March 2019, generating a 13.2% increase in sales and totaling a value of R$13.26 billion.

Financing

Vehicle financing accounts for around 80% of new and used vehicle purchases in the country.

Even though this is a much better known modality than the consortium and, consequently, also more used, financing means that the owner ends up paying a larger amount at the end of the payment of the installments.

To obtain financing, you need to find a financial institution that works with this type of credit line, this can be a regular bank or the manufacturer's own.

In this case, the value of the vehicle is paid in installments and interest rates are included in the installments.

Which in some cases can make the vehicle around 75% more expensive.

However, even though you pay a higher amount at the end of the installments, the advantage of this type of negotiation is that the installments are fixed.

Unlike the consortium, they did not suffer an increase if the car increased in value during the financing period.

For these and other reasons, even though it is more expensive, financing is still preferred by many people because it is approved quickly and the vehicle is purchased at the time of the negotiation contract.

Advantages of financing

• You can leave the store with the vehicle as soon as the financing is approved;
• Possibility of installments in up to 72 installments or more, depending on the rules of each bank;
• Fixed installments from beginning to end of financing.

Disadvantages of financing

• Extremely high interest rates;
• Enough bureaucracy for approval to be made.

Financing indices

According to ANEF – National Association of Financial Companies of Automakers, in February 2019 there was an increase of more than 24% in the demand for financing light vehicles in the country.

The association states that around R$125.4 billion were released for financing in 2018 and the trends are for even higher numbers this year.

Currently, the total credit portfolios in the country are around R$201.6 billion.

When analyzed by time of use, the most financed cars were those between 4 and 8 years old, reaching 118 thousand units, followed by new vehicles with 91 thousand units.

Among the new vehicles financed, some were in greater demand: Onix (7,575), HB20 (4,959), Ka (4,015), Prisma (3,936) and Palio (3,656).

Consortium x financing

So that you can make a comparison of values, a vehicle costing R$70,630.00 has very different values ​​in the two modalities.

Regardless of the values, the best thing to do when choosing between the consortium or financing is that you consider all the information on the subject and keep your personal and financial planning in mind.

Many economists tend to claim that, despite many people believing so, the consortium is not an investment.

Since you have an amount of X and it does not return you with profits, with income.

Furthermore, they advise that the consortium should only be sought by people who have difficulty saving money and can have a larger monthly amount available if necessary.

Or by people who have money saved to be able to place a good bid and receive the vehicle more quickly.

Financing, despite having much higher rates than the consortium, may end up being more interesting for those who do not have the possibility of having larger installments over time.

And yes, interest rates are high, but there are numerous companies in the financing business and they can always be negotiated.

Therefore, before choosing your vehicle payment method, you need to consider how urgently you need the vehicle and the final amount you are willing to pay for the car.

One tip is to always calculate the Total Effective Cost (CET) and thus know exactly how much you will pay.