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Car loans are becoming more accessible, but the risk of fraud is increasing
Bank of foreign carsThe Russian car lending market will soon be replenished with new participants who can significantly change the already established rules of the game. We are talking about banks wholly owned by foreign automakers. Such financial institutions are able to issue cheaper loans and thereby attract a significant number of borrowers for the market. Russian bankers admit that with the emergence of such competitors they will lose part of their profits. However, according to financiers, even despite the obvious advantages of “automotive” banks, Russian credit institutions have their own strengths.
Now several large foreign automakers, for example Toyota, BMW, Renault, GM, DaimlerChrysler, have announced the creation of their own financial structures in Russia. And although not a single such bank has yet started operating (however, Toyota Bank has already been registered by the Central Bank), Russian bankers are already calculating for themselves the consequences of the emergence of such competitors. “Most likely, such banks will be able to offer the most favorable conditions to borrowers,” believes Tamara Ivanova, head of the lending department at Mezhprombank Plus. -- Firstly, foreign subsidiaries have cheap financial resources, and secondly, special cooperation with an automaker may also affect loan rates to the population. This can be reflected not only in a reduction in the total loan amount, but also in the possibility of providing interest-free loans or selling cars in installments.”
Now the average market rates on car loans are 13--15% per annum in rubles and 9--10% per annum in dollars. In addition, many Russian banks, together with car dealers, offer special programs for buying a car at 3-4%, and sometimes at 0%.
“Most likely, financial institutions (connected with foreign automakers. - Ed. ) will provide loans for the purchase of cars at rates of 2.9-9.9% per annum, depending on the repayment period and the size of the down payment,” predicts Deputy Director of the Retail Lending Department of the Moscow Credit Bank (MCB) Pavel Ilyin. “Programs with reduced interest rates are effective in terms of stimulating demand, but at the same time they are quite expensive for producers.” At the same time, as Anna Bogovalova, head of the car lending department of the Bank of Moscow, notes, for borrowers, obtaining such a loan can result in inconvenience. In particular, we are talking about more stringent requirements for the solvency of clients, as well as the lack of a wide regional network where these loans can be sold. In addition, as Ms. Bogovalova reminds, a new bank cannot initially afford a minimum profitability: “When organizing a successful business, knowledge of the market is necessary. In addition, it is necessary to organize its own structure to perform the functions of accepting applications, verification, customer service, loan repayment, a department for monitoring the loan portfolio (risk management) and a service for returning “problem” loans. All this requires both time and material costs.”
Anna Ushakova, head of the development department of the VTB-24 auto lending department, shares a similar opinion: “Competitive advantages in terms of knowledge of the Russian consumer, their mentality, and needs remain with domestic players.”
At the same time, the emergence of “home” banks of automakers can significantly complicate the development of joint auto lending programs between banks and car manufacturers. Since the end of last year, Russian banks began to enter into exclusive agreements with automakers. “As a rule, the advantages of joint programs with car manufacturers and banks are lower interest rates on loans and a minimum insurance rate,” says Stanislav Voloshin, director of the retail business department at Impexbank. As Tamara Ivanova from Mezhprombank Plus notes, “an exclusive program may provide for not only a reduction in the cost of the loan and car, but also the cost of insurance, since most often the third party to the agreement is an insurance company.”
Such programs are very beneficial for banks, as they allow them to attract additional customers for a particular brand of car. And as Ms. Bogovalova notes, the emergence of specialized banks may complicate the creation of such tandems. However, banks have at least another year and a half to two years to make money on these projects - as a rule, this is how long it takes foreign subsidiaries to obtain a license, attract personnel, and create infrastructure.
Both for fear and for conscience
Another way to lure customers is for banks to refuse CASCO (theft plus damage) - previously a compulsory type of insurance when obtaining a car loan. The cost of the policy, depending on the insurer and the type of car, averages 6-8% of the price of the car. Many banks now offer such products, in particular MDM Bank, VTB-24, Russian Standard. At least one advantage for the borrower with this scheme is obvious: he can choose absolutely any insurance company if he wants to get a CASCO policy. Or not insure at all. As a rule, banks do not allow you to take out insurance for express auto loans, when the loan application is processed within an hour and the borrower provides a minimum package of documents. “However, all such programs carry additional risks for the bank, so they have to either increase interest rates on these programs or the size of the down payment,” notes Elena Bushnyakova, head of the department of retail banking products at MDM Bank. In her opinion, such express loans without CASCO should be taken out for the purchase of used cars - “theft plus damage” insurance for such cars is much more expensive than for similar new models.
You can now buy used cars with a loan not only from car dealerships, but also from private individuals. Russian banks have begun to serve borrowers who want to buy a car second-hand. Such cars, naturally, are much cheaper than their counterparts from specialized car dealerships. However, Andrey Kuptsov, vice president and director of the retail business department of Transcreditbank, notes: “Firstly, the bank checks not only the buyer of the car, but also the seller. Secondly, the cost of the car is determined not on the basis of the purchase and sale agreement, but on the basis of an assessment sheet, which is filled out by the insurance company based on the main characteristics of the purchased car.” The cost of a loan for such a car may be higher than for a car purchased at a car dealership. According to Tamara Ivanova from Mezhprombank Plus, “when buying a car from a private person, the risk of fraud on the part of the seller increases, so the rates on such loans may be higher than on regular ones.”
The suspicion of banks towards used cars bought second-hand is understandable. With the increase in car lending volumes, the number of fraud cases has increased sharply. Very often, a car taken on credit is resold without informing the bank about it.
“This is a big problem for Russia,” says Elena Balashova, head of the retail lending department of the First Republican Bank. - The percentage of such fraud is growing day by day. Cars purchased on credit are deregistered, their numbers are changed, and such cars are sold in another region or even used for spare parts.”
As a result, both financial institutions, whose loans are not repaid, and buyers of such cars suffer. It is impossible to find out whether a car is pledged or not, since there is no single database of cars purchased on credit in Russia. According to Anna Ushakova from VTB-24, “to reduce the risk of a fraudster selling a credit car before registering with the traffic police and returning the PTS (vehicle passport) to the bank, the bank should require such a car to be registered through a car dealership.” In this case, the title does not fall into the hands of the borrower, and he is deprived of the opportunity to illegally resell the car. Bankers recommend following several mandatory rules when buying a car second-hand. According to Pavel Ilyin from the Moscow Credit Bank, it is worth paying attention to the fact that most cars manufactured in 2003-2006 were purchased on credit. An official letter from the creditor bank can serve as confirmation that the loan has been repaid and the car is no longer collateral.
According to Elena Balashova, Ukraine has positive experience in combating fraud in the field of car lending: “A common tax and collateral base has been created there, which receives information from the tax authorities about the seizure of property and from banks about the transfer of property as collateral. In addition, a mark indicating the presence of an encumbrance on the vehicle is placed on the PTS and the traffic police card. And the traffic police simply won’t deregister the car without written permission from the bank.”