Hungarian leasing companies finding it tough writing new business with commercial customers are turning their attention to the apparently burgeoning number of consumers looking for new car finance.

One leasing company in October launched an innovative financing product for this market. It incorporates a letter of credit (L/C) and puts the potential car buyer in a negotiating position usually reserved for buyers with cash in hand.

L/C scheme

In the scheme launched by Postabank-Leasing, an L/C is made out to a prospective purchaser before they decide which car they wish to purchase. Before arranging the L/C the company evaluates a credit application from the potential buyer. Once the L/C is issued to the customers, he or she can hawk it round several dealers and use it as a cash-equivalent in order to obtain the best deal they can.

The L/C is valid for 45 days from the time of issue and can be used at any car dealership. Financing can be in Hungarian forints, euros or Swiss francs. The payback period ranges from 12 to 72 months.

Car fuelled growth

Postabank-Leasing currently holds 10 per cent of Hungary's new car financing market, and is a market leader in financing motorcycle purchases.

According to one Hungarian leasing executive, strong growth in the country's leasing market overall is a result of increased consumer demand, mainly in the car market. Some leasing companies are reporting 100 per cent increases on a year on year basis in that market. Officials at the Hungarian Leasing Association say that because of sluggish economic conditions there are no significant increases in any commercial areas of the market such as capital goods and property.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.