Since the beginning of the full-scale war, the demand for car loans has decreased significantly. As well as, in fact, the demand for new cars and the number of banks ready to finance the purchase. However, in conditions of the relative stabilization of the economy and renewal of car import, Ukrainians are more likely to apply for car loans.
At the same time, new useful products continue appearing on the market, large banks enter or re-enter the market, and customers are becoming more financially literate.
Roman Bunich, Head of Long & Alternative Channels Development Department at Credit Agricole, told us how the automotive lending market is developing, what will help make it better and more reliable, as well as what profitable programs are offered by the bank.
People started buying more new cars in 2023, compared to 2022. Why is this demand increasing now?
In order to answer this question, you need to be aware of several indicators. One of these is the number of vehicles per thousand people of the country's population. For example, by 2020, Spain had approximately 615 (vehicles - EP) per thousand population, which is the largest indicator in Europe. In Ukraine, there were about 200. Therefore, it is necessary to understand what comparison basis we use to claim that "people are buying a lot". If we talk about the average number of vehicles per 1,000 citizens, Ukraine has a fairly large potential for growth.
Ukrainians, indeed, purchased slightly more cars in 2023 than in 2022. However, if you look at the indicators of the new car market, they are meager. In other terms, even before the war, this share was insignificant, and now it has remained so. There was a delayed demand from last year, but by itself, this figure is not immense.
The number is about five to six thousand new vehicles a month. In terms of loans, the figure averages out at 500-600 cars.
So, if we are talking about car loans, how have these indicators changed in recent years?
Currently, there are no official statistics on the number of cars purchased on credit. This is an arbitrary "Excel sheet" that circulates among banks and insurance companies, and features indicators that more or less reflect the actual market situation.
This share nowadays (the share of new cars on credit - EP) constitutes about 12%. There was a time when this figure reached even 50%. If a brand is actively involved in the promotion of a loan program, then car loan sales are higher there. Before the war, the figure averaged 25-30%. Meaning, out of ten new vehicles, nearly three were sold on credit. Today it is slightly more than one.
Specifically, the share of the bank in the Ukrainian market is 25-30%. We have maintained this share of the market for the past three to four years. Before the war, six to seven banks were active (in the field of automotive lending - EP), at the beginning of the war, both our bank and Oschadbank were actively involved, in 2023 another player joined the market, namely Privatbank.
Thus, if we talk about 2024, there are three powerful players on the market, whose market share constitutes about 90%.
Please, tell us more about the services in the field of automotive lending, perhaps based on a specific example
In general, the automotive lending market is pretty straightforward. A customer wants a car, a bank has funds. It is necessary to give funds to the buyer for some period of time, which is convenient for them. But what additional value can we offer to the customer in this very situation? For instance, we can offer special favourable terms.
We have a product that is unique in the market. It is Toyota Lehko. Its main advantage is the availability of a balloon payment on the loan. In other words, classic lending presupposes the down-payment and then the entire amount is paid off in instalments over the loan period. Concerning this product, we have the option of paying 30% or 40% of the residual amount after three years.
Before the war, almost all types of automotive lending were already present on the market, and the only thing missing was Balloon payment (large residual payment - EP). It is quite common in European countries, but we didn’t use to have it.
Now, we have this product in Ukraine, it is available for Toyota Ukraine. It is currently a one-of-a-kind product on the market.
Could you explain in more detail how it works? Meaning, a person makes a down-payment when buying a vehicle, typically 20-30%, and then pays off the loan over a certain number of years. So how does it work in this case?
To illustrate the point, you have UAH 100 thousand, and there is a down-payment in the amount of UAH 30 thousand. Then you pay off the remaining UAH 70 thousand divided into equal instalments over three years.
However, regarding this product (Toyota Lehko - EP) you can pay 30% on the last day of the loan. Hence, your monthly payment is reduced. The idea of this product, which was developed specifically with Toyota, is to reduce the monthly loan payments.
You also have the option to trade-in after these three years, which means you hand in the first car, and it will serve as down-payment, and you get a new one. It is such a good European practice when you take a vehicle and replace it every three years.
How do banks cooperate with brands?
A bank is a partner in this product, a financial leg-up, but the main impetus comes from a brand. They are more knowledgeable about the preferences of their customers, their model range, and we make their demand for this product our starting point.
If you are a customer, if you would like to get a vehicle, visit the official showrooms, look at the programs offered by the brands. If these programs are offered in partnership with a bank and an insurance company, it is usually a very good option in terms of reliability and benefit.
Look into the matter of a loan agreement. As of today, the National Bank of Ukraine has brought financing in Ukraine to a fairly high-quality and transparent level. Everything is specified in the loan agreement, namely payments, related services – it’s all there.
When communicating with a bank manager, pay attention to their expertise, ask questions. I can speak for Credit Agricole: we have been engaged in automotive lending for 15 years and have all the necessary tools for quality work. In addition, we are the only bank on the Ukrainian market that holds the ISO 9001 certificate for automobile lending. It is a guarantee of the quality of customer service.
There are options that the banks can explore. There is also a used car market, which is barely gets any financing. It’s another opportunity for cooperation with a vast untapped potential.
What programs should customers pay special attention to and why?
If I were a customer, first and foremost I would pay attention to programs developed jointly with car brands. If you take, for example, a financing program that is offered for a specific car brand, then as a rule, these offer the best possible terms for a customer. Usually, this program also includes cooperation with an insurance company, which is an important component of financing and insurance.
In other words, cooperation of a bank, an importer, a dealer and an insurance company results in a product that is, as a rule, the most beneficial for a customer.
To illustrate the point, together with our partner Stellantis, we offer exclusive lending terms for Peugeot, Citroen, DS, Jeep and Opel vehicles. The interest rate on the loan starts from 0.01% per annum, and the down-payment starts from 30% of the cost of a vehicle. In addition to financing, we offer vehicle (CASCO) and civil liability insurance by trusted reliable insurance partners.
With the official representative of the BMW brand, AWT Bavaria, we have a lending program with a differentiated interest rate, popularly known as "multi step", which offers the minimum rate during the first year or two with the subsequent increase.
How does financing of used cars work? Meaning, where should a person go to get this type of car?
On the used cars market the situation is a bit more complicated in terms of mind-set. On our market, customers are not used to considering the option of buying a vehicle with a mileage on a loan, even though it exists. Taking out a loan for the remaining amount required is available. To illustrate the point, you have USD 18 thousand, you can take out another 2-3 thousand and get a newer vehicle. This is a huge potential to explore for the bank, for the market, for customers, for the entire financial sector and even for insurance companies.
An increasingly greater number of dealers are offering platforms for sale of the used vehicles. Contact the official dealers to explore this option. The next significant milestone on the market development will be the option of financing cars directly between owners, however it will require additional legal framework in terms of transferring the property rights.
When buying a vehicle on a loan, which cars do customers opt for? Could we create a portrait of the purchase instead of that of the buyer?
In Ukraine, the so-called car segmentation is underway, we have a Price-driven market (price-oriented market – ЕP). Meaning that if the price is right, the item gets bought. Now cars made for other markets are very common, they are made according to different standards but they are imported to Ukraine. For instance, in 2024 you can buy a 2022 vehicle and it will be new according to the documents, without any mileage.
Actually, SUV (sport utility vehicle) models account for about 70%. The market in Ukraine gravitates towards SUVs, compact crossovers and crossovers in general. Sedans are not in demand right now.
We now often hear news that Ukrainians are buying more electric cars or hybrids, take Toyota RAV4 as an example, it is quite popular…
Taking into perspective banks and bank financing, the customer is what matter the most to us. If this customer opts for an electric car, we will finance it.
When providing financing, the banks do not differentiate between electric cars or vehicles with internal combustion engine. Neither is Credit Agricole set on selling a specific car brand, we are guided by our customers’ wishes and demands and offer them the widest range possible – we have exclusive lending terms with over 15 leading car manufacturers.
I believe that in the short term electric cars will have more favourable financing terms. We are now offering exclusive lending terms for electric cars and plugin hybrids (PHEV) and I think that all Ukrainian banks will adopt favourable terms for electric vehicles.
How to avoid overpaying on a loan and whether early loan repayment is possible without paying penalties to the bank?
No need to be afraid to make loan payments, on the contrary – you should be wary of those loans where you are told that you don’t have to pay anything.
You should realize that when you go to a financial institution, you get cash for a set period of time. This service is not free, you have to pay for it. It is obvious. And there is no need to fear it, it is a widely accepted practice.
Our country experienced a difficult period when financing used to be granted in foreign currency, in US dollars. It was mortgage. It turned out to be a mistake to do so. No country in Europe offers financing in foreign currency unless it receives revenues in foreign currency.
Financing has been granted exclusively in UAH in our country for quite a while. You come to the bank, get a loan in domestic currency, all the amounts are fixed in UAH. You have a loan agreement that stipulates that you make monthly payments of say six thousand UAH and the terms will remain the same for five years regardless of the exchange rate.
If your partner is a solid bank with transparent terms, you can even benefit from such exchange rate difference for a while.
As for the early loan repayment, it can be done at any time after you obtain financing.
What do you think the banks should work on and what should be done for the development of the automotive lending market?
All banks should do quality work. Instead of price competition, they should try to set themselves apart from the competitors due to the speed and quality of service, ability to provide the adjacent services such as insurance or other products connected with vehicle maintenance and individual preferences of customers (security, car maintenance, petrol station services).
Granted, there can be times when banks can compete in terms of prices, but such price racing rarely renders positive results. For the automotive lending market to flourish, I would recommend all banks that enter this market to produce high quality products and set fair prices that reflect the actual market situation.
Let us dare create new products, partnerships with insurance companies is another important aspect – we should cooperate for the benefit of the customer.
