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. Last Updated: 07/27/2016

Credit Option Makes Car Buys Easier




Purchasing a new car is becoming a lot easier for thousands of Russians. In the past year, automobile dealerships have started to offer the option of buying on credit, a service commonplace in the West, but previously unheard of in Russia.


"In the next two to three years, while average incomes stay on a low level, the ability to buy on credit will be a major means of increasing the number of cars in the country," said Patricia Isayeva, an automobile market analyst at United City Bank.


The process of buying a car on credit is fairly simple. The prospective buyer gets a bill for the car he wants to buy from the dealer. He pays a certain percentage up front and the remainder is paid by the credit organization, a bank or a middleman specializing in such transactions. As soon as the dealer receives the full payment, the car becomes the buyer's property. The remaining amount owed, plus interest, he pays to the credit organization over an agreed period of time.


Vladimir Nikitin, a salesman at Tsentralny Inkom-avtosalon, said that since his dealership started selling cars on credit eight months ago, the number of people taking advantage of the new system has steadily increased.


For now the numbers are still small, he said. "If you were to take the monthly percentage I would say it would amount to something like 2 [percent] to 3 percent. Nevertheless, the numbers are growing all the time and I am sure that in the future it will become the predominant way of buying a car."


Financing for cars bought on credit from Tsentralny Inkom-Avtosalon is provided by a company called Perspektivnye Torgovye Systemy, or PTS.


PTS started out as a car dealership. According to Konstantin Shein, the company's director, it was one of the first on the Moscow market to offer the option of buying a car on credit. The company has since stopped selling cars and made financing its entire business. Now it functions as a middleman between the banks offering car loans and purchasers.


Shein said the company's client base has grown rapidly.


"At the moment we are servicing an average of about 100 people a month, mostly of slightly below average income," he said. "Two years ago the number of people a month was around one-third that."


One of the factors Shein credited for the greater numbers of customers willing to use his company's services is an increase in speed of delivery. When PTS first started out a client would have to wait a month to get his car after having made a 50 percent down payment. Since last spring, however, the waiting period has been shortened to a couple of days." With the increase in clients, we have received the means to purchase the automobiles from the dealership much more quickly than before," Shein said.


The yearly ruble interest rates PTS charges are a fairly high 45 percent. The company additionally requires that a client pay 50 percent of the cost of the car up front, a percentage that is higher than average.


"We originally planned to lower our interest rates, but with the Central Bank's rate hike, we have been forced to raise them," Shein said.


By way of comparison, another player on the market, the bank SBS-Agro, as of the beginning of February also had a ruble interest rate of around 45 percent and a dollar interest rate of 27 percent. Probiznesbank, which started selling cars on credit a year and a half ago, charges a dollar interest rate of 18 percent. The required down payment for these banks is 30 percent of the total cost of the automobile.


The process of applying for credit differs slightly from bank to bank, but, as is to be expected, proof of steady income is the main requirement. A person applying for credit at Probiznesbank, might even receive a visit from a loan officer at the client's home or office.


"This is our own method for determining an applicant's financial standing," said Tamara Zakirova, a spokeswoman for Probiznesbank.


"The loan officer might just sit with the client, drink some tea, talk a bit. Maybe this is not a very formal method, but for the bank it has proved useful," she said.