A consortium is one of the best options to purchase your vehicle without compromising your financial life. This mode of purchase allows you to purchase your property using a car letter of credit.
We have prepared this post to explain everything about the letter of credit and show how it may be the option you were looking for to buy your vehicle. In addition, we will show you what to consider when hiring a consortium. Good reading!
What is a letter of credit?
First of all, it is important to understand a little more about how the consortium works. When you enter one, you buy the quota and become part of a group of people who have a common interest in purchasing a good or service. From there, it makes monthly payments, stipulated in accordance with the contracted plan.
The resources of the installments are pooled to form a common fund, from which will come the values of letters of credit, a financial instrument that provides the necessary amount for the acquisition of the desired good. If a person participates in a consortium stipulated at $ 200,000, for example, the letter of credit corresponds to this amount.
Contemplations take place during so-called assemblies, events in which one or more participants are contemplated by lottery or bidding – we will talk more about this later.
Letter of credit to buy car worth?
The great advantage of the letter of credit is that it provides great bargaining power to the participants of a consortium. As we can equate it with a cash payment, the contractor is now more likely to get discounts and benefits when making the purchase of his vehicle.
We can also highlight other significant differentials. One is that it is not necessary to give an amount as input, ie the value of the asset is fully paid in installments over the term of the contracted plan. Another advantage is that there is no interest charge, which is there is the administration fee, which generally has a much more affordable value compared to other forms of installment acquisition.
Since consortium is a planned form of purchase, if you already have a vehicle and intend to trade soon, this is a way to prepare financially and make a smooth replacement.
In addition, the purchasing power of the consortium member is maintained throughout the plan, even if the value of the asset changes. This is because periodic adjustments are made, which are established in the contract, in order to maintain the letter of credit sufficient for the acquisition of the desired good regardless of when contemplation occurs.
Finally, letters of credit can be used for purchase of any asset – provided it falls within the contracted category, such as property or vehicle. This means that you have the flexibility to choose the make and model of your car according to your needs.
How to get into a car consortium?
As mentioned, contemplation can take place in two ways: by lot or by bidding. In the case of the draw, the participant is randomly awarded, ie, has the lucky. In the bidding, the consortium member offers a value that corresponds to the anticipation of installments of the consortium, which is a way to increase the chances of contemplation. There are two types of bid: fixed and free.
In fixed bidding, the percentage of offers is already defined in contract, such as 30% of the letter of credit, for example. The participants of this modality offer the same percentage, the draw is usually made to define the recipient. Remember that each manager can set their own rules.
In free-throw, each participant offers the amount they find most appropriate. In this case, it is interesting to carefully study the history of the group to understand what is the average percentage offered by the participants and to evaluate the conditions of offering higher values.
If you do not have your own funds to pay the bid, you can use part of the value of your own letter of credit to pay it. This is known as embedded bidding. Therefore, when contemplated, the amount received will come with this discount.
It is important to add that the bid will only have to be paid if he is the winner.
What to consider when hiring a consortium?
A consortium with a credible market manager has many benefits. Thus, it is essential for research as well as about the consortium administrator. This is because these professionals will be responsible for organizing all procedures related to your investment. Thus, you need to look for an option that gives security throughout the process.
In Brazil, this type of negotiation is supervised by the Righteous Bank. Thus, it is possible to check on the BC website if the company is reliable and check the seriousness of the service provided. In addition, research the organization’s reputation in the marketplace and customer insight.
Another common misconception has to do with the participant’s own financial condition. If your accounts are not up to date, you may end up compromising the payment of contract installments, and delinquency compromises your ability to participate in sweepstakes and bids. Therefore, avoid a portion or credit that is beyond your means.
It is also crucial to identify misleading promises and unclear contracts. Companies cannot guarantee contemplation in a specific period, for example.
Thus, to choose a high level manager, evaluate the products offered. Seek to know the details and particulars of each service, checking the rates involved in each installation and taking all specific questions with the representatives.
Radcom Consortium professionals, for example, are able to clarify all conditions before closing the deal. In addition, the conditions agreed upon in the first few conversations are recorded in the documentation, which ensures a high level of legal certainty for clients. So having the company may be the best option for getting a car letter of credit.
Liked the content and want to know more about securing a consortium safely? So enjoy the visit and read our complete guide on the subject!