A question on types of financing

[jfrost]

Well, this is an odd question, but since Racketboy is the only English-speaking forum I frequent, I figured I'd ask it here.

A friend just called me and asked if I knew whether there is a type of financing called "consórcio" (consortium) in the United States. I didn't know it and I was left curious, so I'm asking you guys.

A consortium is a type of installment payment.

Say you want to buy a car but, as most people in this country, you're likely to not have all the money you need right away. So, you enter a pool of people who want to buy the same car and your payment is diluted in up to (generally) 60 installments.

Each month, then, you will enter a draw and you could be randomly picked to have your car. The bad part is that you might be out of luck and only get your car when you have paid most of your installments. There's a chance you could get your car right away, though.

There's also another type of consortium, which is built around bidding.

Since the period of payment is so long, people who are able to do better in the meantime can bid on the car each month to have their debt lowered and get their car earlier. It's an auction-like system; if you pay more in a given month, you can have your car right away and pay a larger chunk of the money you owe.

I don't know if it was confusing but basically it's like this: (1) you pay in installments for something but don't get the stuff right away; (2) each month you might get lucky and get the thing you paid for - or not, until the last month; OR, if this is the system chosen, (3) you can bid on the item to get it earlier.

So, is there anything similar in the United States? Or is it just another financial trickery exclusive to Brazil?

[BoringSupreez]

I have never in my life heard of such a thing. I think that's just more "financial trickery exclusive to Brazil."

[Opa Opa]

WTF.

My head is spinning. I've honestly never heard of anything like this before.

[o.pwuaioc]

Financial trickery exclusive to Brazil.

[dedalusdedalus]

I've read of a somewhat similar practice gaining popularity in the developing world, in which people pool their money, and each month the entire interest is awarded to a single person on the basis of a lottery.

Unless it's heavily regulated, I'd steer clear because this practice seems to leave a lot of room for abuse by flim-flam artists.

[jfrost]

It's quite an old practice, going back at least to the 50s.

It's pretty popular too. We are a poor country, so we come up with all sorts of things to scrape by. Consortiums, in particular, are managed by most banks, most car and motorcycle sellers, lots of credit card companies. It's not a shady practice at all.

There's also the fact that we love installment payments. We have a past of hyperinflation, people don't really trust money. When inflation hit, people used to buy whatever they could to let go of their useless devalued money. Paying in installments was a way of getting more in less time (even though it would usually include interest). It's something that has stuck.

[MrPopo]

We have a lot of installment-based financing here for appliances and furniture. You frequently see advertisements for 12 months or 3 years of interest-free financing. As long as you make the minimum payments and pay off the entire thing by the end of the term you don't pay a dime of interest. If you don't then you get slapped with a 25% APR on the remaining balance, retroactively.

[Stark]

Obviously the difference being that you get your item right away and don't have to potentially wait until it's paid for to get it. Putting something on layaway seems closer, although without the lottery aspect.

[Breetai]

Well, America has never experiences short-term hyper-inflation yet. That may very well change soon. Then maybe the US (and Canadian) members here will also experience this wonderful way of acquiring cars.

Yes, I have heard of it... but not locally.

[Luke]

Bad Idea Jeans.

If you have to second guess, always pass.