Why is it profitable to buy a car on credit now?

Today, Roman Bunich, Head of Long and Alternative Channels Development Department at Credit Agricole, was the guest of Autocentre. He spoke about the situation on the car lending market in Ukraine.

Roman, regardless of the challenging situation in Ukraine, car market keeps growing. Is it connected to car loans? What are the latest automotive lending developments?

At the start of the full-scale invasion, all banks halted lending. We were one of the first who returned to the car lending market. It is true, we are living in the hard period, on the other hand, over 2 years have passed since the war broke out, the economy keeps working, people have adapted, the bank has also adjusted its processes to the current reality.

Why are people taking out car loans? It is a complex issue consisting of three layers – availability of the lending program at the bank, opportunities from car dealers and the cost of service. The hryvnia exchange rate plays a role as well. If the domestic currency slowly devaluates, the fixed rate on a UAH loan is making it attractive from the economic perspective.

Ukrainian business keeps operating and people need new vehicles, therefore the banks are coming back to finance the purchase. I should specify that no critical changes occurred in the industry compared to the pre-war period.

While no official statistical data are collected, the banks and insurance companies have information about the market figures of car sales on a loan. Recalling the situation of the pre-war market, the share of new cars sold on a loan accounted for 35-40%, while it reached about 50% for some popular brands. On average, 4 out of 10 new vehicles were purchased by Ukrainians on a loan. Today, the share of credit sales in Ukraine is between 12 and 14%. This area definitely has potential, we can see the sales numbers grow. The banks in Ukraine are actively resuming car lending while the importers are also supporting this trend.

When the full-scale invasion started, many people moved abroad, including on vehicles bought on a loan. What is the situation like there? What happens if they stop making payments on a loan?

Our loan portfolio is high quality. Most of our borrowers made a conscious decision to go for automotive lending, they are trying to repay the loans in a timely manner, the level of past due debt is minimal. We even observed cases when the loan vehicle was damaged but the customer fulfills his or her commitments to the bank in time. At the same time, we practice personalized approach to every customer, taking into account the situation they found themselves in.

Roman Bunich

For many years in a row, Credit Agricole is among the automotive lending leaders, in particular in terms of cooperation with official importers and dealers. What does such cooperation look like now?

Credit Agricole is working with 15 leading car manufacturers, has several key strategic partners, such as “Toyota Ukraine”, “AWT Bavaria”, «Renault Україна», «Nissan Україна», Winner imports Ukraine, “Stellantis Ukraine” and “Auto International”. Not much has changed in this respect, not only have we managed to keep our mutually beneficial relations with partners, but are also planning to sign new contracts. Thanks to our customers, the automotive lending market share of Credit Agricole is 26-28%.

At the same time we are developing awesome new products that can meet the maximum needs of all the parties concerned. For instance, with Toyota Company, we presented the one-of-a-kind product on the market, “Toyota Lehko”. Your down payment starts from 30% of the vehicle price, then for 3 years you pay monthly fixed payments, after that you can either keep the car, trade it in for a new model or sell it back to the dealer. Note that Toyota guarantees high buy-back price for your vehicle.

Together with Toyota, we have a unique product on the market called «Toyota Lehko»

Taking into account inflation and the exchange rate, such program can even help you save money. As 40% of the vehicle cost in hryvnias today and 3 years from now are two different numbers.

Jointly with our partner Stellantis we are offering exclusive lending terms for Peugeot, Citroen, DS, Jeep and Opel car brands: the interest rate on the loan starts from 0.01% per annum, the first installment is from 30% of the cost of the car.

Being among leaders of the automotive lending market, we offer partnership financing programs on favourable terms but also aspire to exceed our customers’ expectations. Now, when buying Peugeot, Citroen, DS, Opel or Jeep cars on a loan, our customers get stylish and handy car organizers as a gift.

Together with our partner Stellantis, we offer exclusive lending terms for cars Peugeot, Citroen, DS, Jeep and Opel brands

Has lending in the wartime become more expensive for buyers? How have requirements to people applying for a loan changed? Have they become stricter or on the contrary, more lenient?

The main indicators include deposit market and the NBU key policy rate. When the regulator lowers the rate, the loan cost is decreasing. As for borrowers, we continuously analyse our loan portfolio. We have updated our terms twice in order to ease the terms for our borrowers. The latest time was this past autumn. People who take out loans now maintain them in good faith. Consequently, if this state of affairs continues, we will keep facilitating the procedure to make it accessible for everyone.

The trend of the two recent years is that sales of electric vehicles have soared. Are there any special lending tariff rates for such cars or any special terms?

We are watching the situation on the market and are aware that with every year the share of electric cars will grow, thus we need to work with these buyers. Our bank is in the process of developing special terms for buyers of electric vehicles. We are planning to present the product in the Q2 of this year. Loan programs for the “electrics” are sure to come and I believe they will be appealing.

Soon we plan to introduce a special product for buyers of electric vehicles

Are there any lending programs for used cars now? How does it work?

The subject of used car loans is of great interest for us, as this market is quite large and has got great potential. I believe that the situation will improve when all the banks start doing quality work in this area. I mean specifically offering used car loans to customers instead of consumer (unsecured) lending as the former entails a somewhat different logic and Philosophy. It is one thing to grant an unsecured loan for a certain amount so that a customer could buy anything: a vehicle, construction materials or any other goods. It is a totally different story when the purchase of a used vehicle is being financed. When the loan is granted for the purchase of a used vehicle, this car is treated as collateral for the bank and is insured, thus the financing rate is lower. Moreover, a customer can then have the car repaired in case of a road accident thanks to insurance payments, if the car was bought at a dealership. It is a whole ecosystem that sets off its work mechanisms. In any case, the terms will be significantly more favourable for the buyer compared to consumer lending.

There is another element at play when buying a car that has to do with traditions and habits. Not all Ukrainians are willing to consider buying a used car on credit. As a rule, people are usually trying to pay for it in full. To illustrate the point, our partners from Toyota shared that out of 2400 used cars sold last year a mere 30 of them were purchased on credit.

At the same time, the used car financing market is truly attractive and has great potential, therefore the situation will gradually improve if the banks make active efforts to work in this segment. Granted, at the moment it only has to do with concluding agreements with the official dealers in possession of vehicles bought back from customers, but eventually individuals will be able to conclude agreements directly between each other.

Roman Bunich

In your opinion, when did the Ukrainian car market get rid of the conservative habit of selling the car for a full price and switch to the new financial mechanisms of paying in installments, as it is common in developed countries?

It does not depend solely on banks, it should be a joint effort of all market players, in particular insurance companies and dealers. And what we see with “Toyota Lehko” as an example and others prove that the market is moving in the right direction.

If the process evolves and all the importers accept financing as a sales instrument, there will be a positive outcome.

The banks, on their part should ensure that the financing process is as transparent as possible. One of the crucial steps has already been made – the lending is in hryvnias with the fixed rate that does not change when UAH/USD/EUR exchange rate fluctuates. This way the bank has cultivated a mutually beneficial relationship with customers.

If lending programs gain trust from customers while insurance companies offer quality support for the financing process, the lending terms will become progressively more attractive.

To recap, I believe that the share of cars bought on credit in Ukraine will come back to the pre-war level of 35-40%. It is a good European indicator which will hopefully increase even more.