Buying a car in cash, or with a credit of less than three years, is something less and less attainable for most Mexicans. Purchasing power has been reduced amid inflation, and the only way consumers have found to get hold of a new vehicle is four- or five-year financing plans .
The price of any car, including those with a basic equipment level, is already over 200,000 pesos, which has prompted Mexicans to turn to new financing schemes . Ten years ago, financing terms of more than 72 months were not among the most popular in the market, but today the picture is very different.
Vehicle prices have registered a rise of 14.6% so far this year, according to the consulting firm JD Power, the highest observed in the last decade , after the lack of supply that prevails in the market due to the break in global supply chains, as a consequence of the covid-19 pandemic.
Inflation in the price of vehicles is higher than the general one, which amounted to 8.15% in July.
What is the most requested financing term?
Paola Hinojosa is a high school teacher; Two months ago, she received a salary increase, which motivated her to buy her first car. “I’m earning 5,000 pesos more, with that extra I can now think about getting financing for a car, because I don’t have enough savings to buy it in cash,” he says.
In Mexico, out of every 10 people who buy a vehicle, six think like Hinojosa. According to data provided by the Mexican Association of Automotive Distributors (AMDA), of the total vehicle purchases in the country, 59.1% are made through financing , either through a bank or a brand finance company.
Despite the fact that the proportion of consumers who buy a car via financing has remained the same in the last 10 years, specialists have seen a change in the terms that people request .
In 2012, when the average price of a car was around 238,000 pesos, the most requested term was 48 months -representing 26% of the total-, followed by 36 months -20% of the total-. Then there was no 72-month term, according to data from the Mexican Association of Automotive Distributors.
Today, that the average price of a unit is located at 399,000 pesos, consumers have decided to cope with this increase, opting for longer terms, such as six years. The 60-month scheme is the most requested , representing 29% of the total loans requested in the first half of the year.
What is the most common interest rate for each term?
In a financial product, opting for longer terms will always be synonymous with paying higher interest, and automotive financing is no exception to this rule.
According to Banxico, the weighted average interest rate by balance of loans granted in the last year, in a term of 0 to 12 months, is 7.3%, while in a term of more than 48 months, it is 13%. or more.
Brais Álvarez, account manager at JD Power, foresees that loans with longer or longer terms, although they generate a higher interest payment, will be more in demand in the following months, as they allow maintaining a low monthly payment.
Brand house financiers, such as General Motors, have realized this need and have even offered 90-month terms for some very specific models.
How many months should I buy a car?
After the high levels of inflation that have been registered in the country since last year, the Board of Governors of Banxico decided, a few weeks ago, to increase the reference interest rate by 75 basis points, reaching 8.5%, its lowest level. high since 2008.
Gerardo San Román, director of the consulting firm Jato Dynamics for Latin America, highlights the high volatility in economies that affects credit conditions : perhaps the average interest rate today will not be the same in three months. This also generates variations in which is the term most requested by Mexicans.
For example, in April, of the total number of compacts sold, 37% were obtained through 60-month financing and 16% within a 72-month term. For July, the last month for which figures are available, these percentages changed to 26% and 24%, respectively.
Eric Ramírez, Latam regional director of the Urban Science consultancy, predicts that the interest rates to acquire a car will increase towards the final stretch of this year , however, there is no forecast regarding how much this increase may be. Whatever the adjustment, a rise in interest rates will make car financing even more expensive.
For now, San Román highlights that the 36-month term is “the ideal one”, both for companies and consumers, since it is “a midpoint”, where financial companies see benefits in the short term and people do not spend so much on interest payments.
Requesting it and maintaining a competitive monthly payment, however, will require a higher initial outlay.
