Poland's Idea Bank is aiming to shake up the auto lending market with a new pay-as-you-drive model that uses GPS to track drivers to calculate their monthly payments.
The Happy Miles model sets a price - which varies depending on the vehicle - for every kilometre driven. A GPS device automatically sends data to the creditor company and at the end of each month the rate is multiplied by the total distance travelled and a small fixed cost is added.
Idea Bank is initially concentrating on car loans but says that the method could also benefit people and firms looking to buy and rent trucks, agricultural machinery and construction equipment.
The bank uses the example of a sales rep for a small firm who gets the flu and is unable to work for two weeks. Because the car is not used, instalments plummet and the firm is protected from liquidity problems.
Łukasz Domański, Happy Miles PM says: "We believe that the pay-as-you-drive model will turn the tides for many entrepreneurs. Not only it allows for adjusting financial obligations to the company’s cash flow; it also brings additional benefits to having a GPS device installed in a vehicle. The idea of car loan per kilometre may appear especially attractive to companies owning fleets, or freight companies."