The Risk of Foreign Currency Car Loans
The counterparty’s exposure to FX-based vehicle financing lies in the fact that an increase in its costs may be caused by an increase in the relevant exchange rates.
Car loan contract with the exchange rate
It follows that the ideal time for concluding a car loan contract is when the exchange rate of the currency concerned is as high as possible. When the contract is entered into, depending on the currency chosen, the foreign exchange purchase rate quoted in the foreign currency exchange rate EURO or CHF valid on the day preceding the conclusion of the contract shall be fixed and displayed by the contractor on the payment schedule.
The weakening of the forint results in an increase in costs, while the strengthening of the forint leads to a reduction in the cost of installments on car loans. Each month, the installment is calculated on the due date of the monthly installment, ie the installment calculated at the rate fixed at the time of conclusion of the contract plus 2% of the foreign exchange selling rate of the EURO or CHF quoted on the day preceding the due date.
Exchange rate differences arise in respect of both capital and interest and the difference in interest. Settlements are made quarterly with interest rate differences. When the balance results in additional costs for the contractor, the invoice letter will be mailed with the itemized monthly data and the balance as well as the check, depending on the form of payment.
At reduced costs, the car loan monthly installment (or several monthly installments) is automatically or partially settled from the exchange rate difference. In this case, the invoice letter will also be mailed with itemized information on the risks arising from car finance contracts, with monthly data and a statement of balance, and a check for a (sub) amount depending on the method of payment. The method of calculation is specified in the general terms and conditions of each financier.