Mexicans have found a way to obtain money to buy a vehicle : payroll loans or credits . The ease with which banks offer these types of loans have made them a quick, albeit expensive, alternative to traditional auto loans offered by the same banks or brand-name home finance calls.
From January to July of this year, 59.1% of the total purchases of new light vehicles were made through a bank or brand finance company, a figure that in the same period of 2021 was 58.4%. The rest of the models are paid in cash, but that does not mean that this amount does not come from other sources of financing, such as a personal loan or a payroll loan.
Despite the fact that banks have specific loans for the purchase of vehicles, these are less attractive to them – in business terms – than credit cards, personal loans or payroll loans. These three products, unlike auto loans, are a better deal for banks as they are short-term investments and have much higher interest rates, around 30%.
In addition, the payment is generally direct debited to the debit card in which the payroll is deposited, so the bank practically has a “guaranteed payment” of the loan. In 2021, the payroll loan delinquency rate was the lowest compared to the rest of consumer bank loans .
These favorable conditions have made banks promote this type of credit among their cardholders, and have left aside pure automotive credit a little. According to data from the National Banking and Securities Commission, auto loans only represent 1.80% of the total loans granted by financial institutions. In contrast, payroll loans represent around 10%.
According to the latest Basic Indicators of Automotive Credit of the Bank of Mexico, between April 2020 and April 2021, the balance of automotive credit contracted at a real annual rate of 7.6% , which meant a lower decrease than that of the personal loans and credit cards.
Is it convenient to request a payroll loan to buy a car?
Consumers can apply for a payroll loan that covers a portion of the value of the vehicle or even all of it. BBVA, for example, offers higher amounts under the concept of “payroll credit” than under the “automotive credit” concept.
This type of credit, however, is usually expensive because the interest rate even triples or quadruples that offered by home finance companies. Kia, for example, offers a promotional rate of 5% for its Rio model; In contrast, the interest on a payroll loan for an amount of more than 100,000 pesos is around 30%.
Despite the high interest rates, they are attractive to consumers due to the few requirements requested – in some cases it is enough to prove three months in the current job – and the speed with which the cash is obtained. In contrast, the application for a car loan can take up to two weeks and the delivery of several documents: proof of address, proof of a minimum salary of between 6,000 and 10,000 pesos, payroll receipts, RFC, among other things.
Brais Álvarez, account manager of the consulting firm JD Power, underlines in an interview with Expansión that, “before the rise in unit prices, banking institutions have had to renew themselves and look for more attractive schemes to offer more competitive monthly installments.”
Gerardo San Román, director of Jato Dynamics for Latin America, believes that home finance companies have the challenge of reinventing themselves to attract those clients who have been captivated by payroll loans.
“Unlike banks, which are open to all types of credit, brand finance companies have invested to make their plans more attractive and try to ensure that the sales they are having are through their own institutions or the institutions banks with which they have commercial agreements”, said San Román.
