Understand if a consortium is worth it for you

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Understand if a consortium is worth it for you

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You may still not know if a consortium is worth be considered before your goals and needs. However, in the rest of Brazil, many people have seen value in this business.

Only in 2021, there was a 15% increase in adhesions between the months of January and August, compared to the previous year.

There are those who will say, then, that it pays to form a consortium. However, this does not mean that care should not be taken before hiring or even planning its use for the purchase of any goods.

To make your decision easier, in this post we will tell you everything about the subject, so that you understand whether it is worthwhile to make a consortium – or not. Good reading!

What is a consortium?

Consortia are group investments popularly used for the purchase of a high-value asset – such as a car or property. They are acquired by quotas, whose total value of the desired asset will be diluted in monthly installments. In addition, draws take place on a monthly basis, which may include participants with the total value of the asset they wish to purchase..

So, you can buy the desired item before you even pay off all the installments of your consortium. But this is not a rule, not least because experts point out that the consortium is worth a lot to people who:

  • they have no money to buy the cash in sight;
  • they have no urgency to have the good in their possession;
  • they have no discipline and / or knowledge regarding investments to replace by the consortium.

For this group of people, it pays to form a consortium. Of course, this does not limit the profile of those interested in this modality, but they tend to be characteristics common to them.

How does a consortium work?

Basically, the consortium you plan to acquire has the approximate cost of the asset plus an administration fee – in the amount of 18%. Then, groups are formed, lasting from 12 to 180 months (between 1 and 15 years, therefore) and monthly draws take place, as we said earlier.

Let’s take an example: let’s say you want to buy a car worth £ 50 thousand. In the consortium, if you planned to pay the amount in 5 years (or 60 months), you would have monthly installments of £ 983.33 – including here the 18% administration fee, which corresponds to the company that takes care of all the procedures of the operations.

In general – although rates should always be observed carefully – the consortium is a good investment when compared to financing and other loan arrangements.

What are the rules for whether the consortium is worth it?

Before hiring the consortium, see what are the common rules for this business model:

  • there is a stipulated period and maximum number of participants;
  • there are rules both for contemplating participants via lottery or through bids;
  • the administration fee exists for all institutions offering the consortium;
  • there is the possibility to transfer your quota to third parties – it is not valid for all companies that offer the consortium.

Based on this, we will now understand if the consortium is worth it or not based on the situations in which it is a welcome investment and in which great care must be taken before hiring it!

Is it worthwhile to make a consortium?

Below, we bring together the situations in which a consortium is worthwhile. Check out!

For those who have time

Imagine that you intend to acquire a property in the next 5 years. In these situations, you can afford the most affordable installments of the consortium, and will be paying the monthly installments without haste to be contemplated.

With this, the consortium even serves as a “programmed savings”, since you are depositing, monthly, an amount related to the future acquisition of this asset.

For those who want to escape high interest rates

You fees are some of the best known villains of the UK residents consumer. And the consortium comes out ahead of many other types of credit, in the financial market, because the fees for this business model are basically concentrated on the administration fees.

For those who cannot afford huge plots

With more affordable rates and flexible terms, the consortium’s installments are worthwhile because they are more in line with your needs. So, even if you manage to save a little bit each month, it is possible to establish a contract that will not harm your financial planning.

Even if what you are looking for is more disciplined with your finances, save it for later reading another article from us, which explains in detail how can you put together good financial planning for 2021!

What precautions to take with a consortium?

As we have already highlighted above, the consortium is worthwhile for certain profiles and according to some situations. On the other hand, there are points of attention that must be considered before hiring a plan to acquire the good you want. See below what they are!

The waiting time for the draws

Those looking for a short-term – or even immediate – purchase, the consortium is not worth it. After all, it is necessary to be contemplated to acquire the letter of credit in the desired amount and this is beyond the control of the participants.

Bids have high costs

Let’s talk about the bids here. We have not mentioned it before because it is something specific for those who are in a hurry to acquire the good. This is because, in addition to the sweepstakes, people can make bids – which are advances on their parcels (sometimes, the value of this corresponds to 60% of the total).

In other words: not everyone has the money to bid and anticipate contemplation. No wonder, it becomes a benefit for just a few.

Cancellations and chargebacks are challenging

Although the rates are low, in general, the consortium is worth more for those who have the discipline to keep payments up to date and also for those who are sure of what they want buy in long term.

After all, after the seven days foreseen to withdraw from the consortium without fines, cancellation and default can incur fines and even the exclusion of the participant.

The easiest way to get rid of a consortium that you can no longer take over the plots is, therefore, finding someone with an interest in continuing to acquire the good of their own interest, but at a value similar to that of your letter of credit.

There is also the New Consortium Law, which provides for the following situations for refunding money:

  • dropouts or excluded from the consortium have the money back only 30 days after the closure of the group to which they belonged – this, with contracts signed until 02/05/2009;
  • since 02/06/2009, therefore, participants only receive the money back when they are drawn.

It should also be mentioned the care in selecting the administrator of the consortium. Do in-depth research, and don’t forget to analyze the suitability of the company. After all, it will take care of your assets for a long time.

Do you want to stay on top of more tips to know if a consortium is worthwhile and if there are other types of credit that are more aligned with your goals? So, subscribe to our newsletter – just fill in your email address at our blog – to receive all our news directly in your email inbox!

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