Consortium or financing: which is more worthwhile?

Consortium or financing, What is the best option?

To make this decision you need to know the pros and cons of each modality.

That's the purpose of this article, to help you with useful information, keep reading and find out.

What is a consortium?

In principle, a consortium is a form of installment purchase in which a person joins forces with other people to acquire or buy a good, or obtain a service.

In other words, this group of people will join a financial institution to take advantage of purchasing conditions and lower costs than financing, for example.

In this sense, the interested party assumes a monthly payment and competes for sweepstakes or bids, to be awarded credit and achieve your purpose or dream.

In short, the consortium does not charge interest.

However, they have a basic administration fee that varies depending on the company or institution organizing it.

The types of consortia that exist are:

• Those of vehicles;
• Real estate;
• Services;
• Home appliances and furniture.

Consortium or financing: how does contemplation happen?

Contemplation means that the person received the letter of credit to acquire the asset, this occurs in two ways, see how:

Prize draw 

Through the draw, all interested parties have the same chance of being selected.

Thus, the 10th person drawn will be the winner, or if they have already been awarded, the opportunity will go to the 9th person, and so on.

In this sense, the draw takes place at ordinary general meetings that comply with the rules of the contract and with the amounts in the group's cash register.

The number of monthly draws will depend on the rules of each administrator.

Bids 

Participants who don't want to be left to their own devices can opt for bids, which can be fixed, free, or advanced.

This way, the bids are made like auctions, that is, whoever bids the most takes the product.

As a result, in free bids, the person offers the amount they want, and the highest bid wins.

In short, this percentage is calculated based on the credit value and takes into account the group's balance.

In turn, in the fixed bid, the consortium member offers the fixed value of 50% or 25% of credit, considering the characteristics of its group.

This way, when the bid is 50%, the person can take 25% from the letter and 25% from the equity.

What is financing?

Before finding out which is the best alternative between a consortium or financing, you can learn more details about the second option.

Firstly, financing is a method in which the person receives partial or full value of the desired good or service.

This way, she will pay for what she purchased in installments over the stipulated period.

Financing charges interest rates that can be variable or ranged, in addition to other fees and taxes that end up making the transaction more expensive.

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See some features of financing:

• Full credit is made available at the time the financing is granted, allowing immediate possession of the good or service;
• Payment is made through monthly installments over the agreed term;
• Payments include both the loan amount and the interest calculated on the same amount purchased;
• Financing usually involves some guarantees from the interested party, such as property or a vehicle.

Consortium or financing: what types of financing are there?

See what financing options are available on the market:

• Vehicle financing;
• Student;
• Real Estate;
• Crowdfunding;
• Financing of housing finance system;
• Letter of guarantee;
• Self-financing;
• Anticipation of receivables;
• Microcredit;
• Machinery financing.

What are the advantages and disadvantages of consortium and financing?

Here, so you can have a better overview of both and be able to better decide between consortium or financing, the advantages and disadvantages of both will be highlighted.

Advantages of the consortium:

• No entry or membership fee required;
• Does not pay interest in the long term;
• At any time you can leave the group, with or without a fine;
• Convenience of using credit to purchase a good outright, with a down payment or financing.

Disadvantages:

• There is no guarantee when you will receive the credit;
• Continue paying installments even after being selected;
• It is possible to have high administration fees;
• There may be some difficulty in getting the item you want with the credit amount.

Now look at the advantages and disadvantages of financing.

Advantages:

• You receive credit immediately upon approval;
• You have the advantage of choosing the service or good you want, if it is within the value of the financed credit;
• You can negotiate payment terms, such as interest, terms and installments;
• You have the opportunity to amortize or pay off your debt early, with interest discounts.

Disadvantages:

• You need to make a deposit, which depending on the good or service, can be high;
• Pays interest rates, which can be high considering the type of financing and the term;
• There may be other fees and taxes that end up increasing the cost of credit;
• The service or asset may be sold in a situation of default.

Conclusion 

But what is better? Consortium or financing? 

According to the information presented, if you consider the financial aspect, the consortium is more advantageous because it does not require a down payment, there are no fees, and there is no long-term interest.

However, if you need something immediately, financing is the recommended option.

Finally, you must assess your long-term and short-term needs and decide on the method that best suits your situation.