Used car or new set of wheels? How to figure out which you should buy

With liquidity as top priority, most will end up buying a used car, and that's not a bad thing if it's self-funded

Manasee Karnalkar is a private sector employee from Mumbai in her thirties. Currently working from home as most Mumbaikars are, Karnalkar looks forward to buying a car in the future. She says, "I want to avoid public transport, keeping social distancing in mind, so am looking for a value deal and will probably buy a used car." 

Karnalkar is not the only one looking to buy a used car. Sunny Katari, VP Auto, OLX India says, "As the lockdown has gradually eased post lockdown 2.0, we have seen that daily listings of passenger vehicles have grown six times and user interest (daily replies) has gone up by 3.5 times. We see that the pre-owned automobile market is bouncing back gradually to the pre-Covid levels."  

There's a very logical reason for this. People do not want to depend on public transport and want to protect themselves as much as possible from Covid-19. Also, the pre-owned or used car market is quite evolved today. Hemant Dalvi, Mumbai based Auto Expert says, "These days people buy a pre-owned car so that they can use it for 4-5 years and then sell it to buy a new car. In the past, people held on to their vehicles  cars 7-10 years or more." 

This means you can get a car in good condition at a reasonable price. You are spoilt for choice as well, with multiple used vehicle portals, local dealers, and auto company used car portals like MarutiTruevalue and Mahindra First Choice. Dalvi says, "The car is bought to protect one from getting infected in public transport, and we have seen bus commuters buying cars in the range of Rs 35,000 to  Rs 1 lakh. Metro traveller have been putting away as much as Rs 3-5 lakh, which Ola and Uber commuters are spending Rs 5 lakh and more. Used cars offer flexibility of budget across income classes."

Things to look for while buying a used car: Ensure that all paperwork is in place. Check the lenders NOC certificate, proof of loan paid in full, insurance papers, no-claim bonus (NCB), service records, hypothecation status, and such like. When you buy via a loan, your car is hypothecated to the lender. The owner's name should be ideally on the car registration document, not the bank's. Ensure the seller provides you with other requisite verification papers, including the original invoice

Kataria says, "Many people get their cars evaluated by a mechanic or a family member or a friend who understands cars." Some companies inspect your car and issue certificates. Ask the seller to get such an inspection done on a vehicle you intend to buy. It's best to choose a car with a fully-documented service history. Some dealerships offer warranties on their used cars. Avoid buying obsolete ot discontinued models, or a vehicle with very few or too many kilometres on the odometer. A seven-year-old 20,000 km-run car may have problems due to inactivity. Finally, always take the vehicle for a spin, as papers and condition might be perfect, but comfort while driving is essential too. 

Used car loans: The most important thing to remember regarding the used car loan is that its Interest rate is higher and the loan amount is lower. Sahil Arora, Director & Group Head, Investments, Paisabazaar.com, "Interest rates on used-car loans are generally than new car loans, because the risk is higher with a used car." 

Make sure you do the numbers, or else your old car with higher rates might cost more than a new vehicle.  

Who should buy: Adhil Shetty, CEO, Bankbazaar says, 'A second-hand car is an option if you are buying a premium vehicle and can do so without stretching your finances too much. For instance, Sedans from segments C and D lose as much as 40 per cent of their value in the first year alone. A premium model retailing new for almost Rs 15 lakh can be bought for anout Rs 9.5 lakh in the 'seconds' market. So if you are looking to acquire a high-end car, a well-maintained pre-owned car could be a good alternative." Another buyer is someone who has a relatively low budget and doesn't mind such a happening clunker at a low cost. Used cars can give excellent value for money even to the mid-range (Rs 4-9 lakh) buyer if he is willing to do the due diligence. Remember, if you are taking a loan to buy a used car, check out its total cost, including load interest rate, maitainence etc, to find out the real price for you. 

Buying a new car: For the financially comfortable, going for a new vehicle is also an option. And if you can't pay for it cash down, all you need to do is shell out up to 20 per cent and take the remaining 80 per cent on loan. Remember, interest rates are low right now. 

While buying, stick to the 20/4/10 rule. Make a down payment of at least 20 per cent. Finance a car for no more than four years and do not let your total monthly vehicle expense, including principal, interest and insurance, exceed 10 per cent of your gross income. Buy a car with good resale value. 
 

Arora says, "Car loan applicants should carefully factor in their repayment capacity while selecting their loan tenure. While a shorter tenure would certainly result in lower interest cost, applicants should not sacrifice their liquidity and contribution to crucial financial goals for choosing an aggressive repayment schedule." 

In a time like these when liquidity is of utmost importance, don't over settle for a car that would make EMI payments a stretch. Shop across lenders to get a good deal on the car loan. Shetty says, "It can help to get a pre-approved car loan from your lender of choice. This guarantees faster processing of the car loan, and most importantly works as additional leverage while negotiating with the car dealer. You will be in a better position to bargain for more add-ons or fewer fees while closing the deal." 

Never take a dealer tie-up car loan, as they get 1-2 per cent commission on your loan. Remember it's a buyers market, negotiate hard for freebies from dealers like car covers, mats etc. One way to reduce cost is to choose non-metallic colours. Non-metallic colours can be Rs 8,000-10,000 cheaper.

New Car Loan & Pre-Owned/Used Car Loan - Rates & Charges
Lender	Category	Interest rate (%)	Processing fee (Rs)	Maximum Tenure
Union Bank of India	New Car	7.15-7.50	1,000	7 years
	Used Car	8.90-10.50	1,000	5 years
Bank of India	New Car	7.35-7.95	Up to 0.25% of loan amount (Max:5,000) For rural areas: 1,500-20,000	7 years
	Used Car	7.35-7.95	Up to 1% of loan amount (Up to 10,000)	3 years
UCO Bank	New Car	7.45-7.70	Up to 1,500	7 years
	Used Car	7.45-9.30	Up to 1,500	5 years
State Bank of India#	New Car	7.95-11.45*	Up to 0.50% of loan amount For Green Car Loan: 1,000-1,500	7 years For Green Car Loan: Up to 8 years
	Used Car	9.45-10.75	Up to 0.50% of loan amount	5 years
Dhanlaxmi Bank	New Car	8.50-9.60	1% of loan amount	5 years
	Used Car	11.75-15.30	1% of loan amount	5 years
HDFC Bank	New Car	8.80-10.00	1% of loan amount (5,000-10,000)	7 years
	Used Car	13.75-16.00	1% of loan amount (5,000-10,000)	7 years
Federal Bank	New Car	8.90	1,500-2,500	7 years
	Used Car	14.20	1,500-2,500	5 years
Axis Bank	New Car	9.05-11.30	3,500-5,500	8 years
	Used Car	14.80-16.80	6,000 or 1% of loan amount, whichever is lower	5 years
*Additional concession of 0.25% on application through YONO. Further concession of 0.20% on purchase of electric vehicle; #SBI has reduced its MCLR by 25 bps wef 10th June. However, it has not updated the auto loan rates yet
Rates and charges as on June 17, 2020; Source: Paisabazaar.comon its site

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