What is Consortium?
Consortium is a system where several people join together to buy something (car, property, motorcycle). Every month, each participant pays an installment. Each month, one or more participants are awarded (by drawing or bidding) and receive a letter of credit to purchase the item.
How does it work?
- You join a consortium group
- Pay monthly installments (no interest, but with administration fee)
- Every month there is an assembly with a drawing
- Awarded participants receive a letter of credit
- You can bid (offer advance installments) to be awarded earlier
Advantages
- No interest (only administration fee of 10-20% of the total)
- Forced savings discipline
- Cash purchase power (letter of credit)
- Can use FGTS for bidding (properties)
Disadvantages
- Don’t know when you’ll be awarded
- Administration fee can be high
- Money is locked until awarded or the group ends
- Installments can be adjusted
Consortium vs. Financing
| Consortium | Financing | |
|---|---|---|
| Interest | No interest | 8-15% per year |
| Receive the item | When awarded | Immediately |
| Total cost | Lower | Much higher |
| Predictability | Low | High |
When it’s worth it
- When you’re not in a hurry to receive the item
- To change cars in 2-3 years
- As a form of forced savings
- When you want to avoid financing interest