You are here: Home » PF » Features » Spending
Business Standard

Planning to buy a car now?

If you plan to sell it in three to five years, go for a January-manufactured vehicle as it will fetch better resale value

Adhil Shetty 

Planning to buy a car now?

In December, car manufacturers sweeten the deal for buyers with discounts and schemes. There is also a fear that car prices will go up from January onwards. And the potential buyer is confused whether he/she should buy now or pay more later on? Let's compare the situation.

Reasons for discounts

Good time or not, the month of December is laden with attractive discount schemes from virtually every car manufacturer. From cash discounts and freebies to cash-back offers and lucrative buy-back schemes, there are deals galore if you choose to shop for a car in December.

There are some car models that are in the market for quite a few years and the manufacturers would be looking to give them a facelift in the next year. There are also new car models awaited from most manufacturers in the coming year.

Auto makers and dealers also understand the need for ramping up their sales in December so as to clear their inventory for the year. Add to it the festive season, which makes it an opportune time for families to make the car purchase. Therefore, a December deal is a win-win situation for both car manufacturers and buyers. Thus, there is strong incentive for car dealers to give heavy discounts for cars, which is similar to a retailer's stock clearance sales.

Should you buy?


Getting a handsome discount upfront is always good, as there are cash discount offers even up to Rs 60,000. This suits buyers with limited budgets as they can afford a mid-segment car at a good price.

If something appears too good to be true, there is good reason to assume it is. Festive discount offers in December also come with a 'conditions apply' tag. When you buy a car in December, you get it registered under the current year even though the New Year may just be a few weeks or even a few days away. So, if you buy a car today, it will have a registration of December 2015 and the model is also 2015. This may not matter in terms of operability, but it would matter when you try to sell your car later. From a resale point of view, a month's difference now will make your car a year older, and will depreciate its value in the pre-used car market.

Difference

While selling off your car in the future, buyers mostly look at the year of the registration or the model of your car irrespective of the month. With every passing year, the value of your car drops substantially. Therefore, you will get a lower resale value of the vehicle purchased in December.

Let us assume you want to buy a car that costs Rs 5 lakh but is available at a cash discount of Rs 25,000 due to a December festive scheme by the car manufacturer. If you buy the car in December for Rs 4.75 lakh and plan to sell it in another five years, you will get a lower resale value compared to what you might have got if you had bought the same car in January of next year.

Car bought in December: You spend Rs 4.75 lakh and save Rs 25,000 upfront, but while selling five years later, your car will be assumed to be six years old because of a December purchase. If the value of the car depreciates by 30 per cent in 6 years you get a resale value of Rs 3,32,500. Your cost of ownership would then be Rs 1,42,500.

Car bought in January: You buy the car at Rs 5 lakh but being a January model you car will be considered to be only five years old. Your car depreciates by only 25 per cent and you can get a resale price of Rs 3.75 lakh. Your cost of ownership in this case would be Rs 1.25 lakh, or Rs 17,500 lower than in the former case.

So even though your December car was purchased only a few days earlier than the one bought in January, you have to be ready for a depreciation of five-seven per cent of the resale price.

The dilemma

If you are a budget-oriented buyer, and do not plan to sell the car in a few years' time, December is the right month to go ahead with your car purchase.

If you, like many others, plan to sell your car after a few years and upgrade to a different model, see whether the discount benefits outweigh the difference in future resale values as shown above. Usually, the longer you plan to own the car before selling it off, the better it is to go for a December discount.

Also, check on the car model and its pricing. If the car manufacturer is planning to increase prices in January for your desired model, the economics could tilt the decision in favour of a December purchase.

Way out

You can negotiate with your car dealer and pay a partial amount in December to book a 2016 model with some discounts. The chances of the dealer agreeing to this may be slim, but it is well worth a try, especially if there is a long waiting for the car model you are looking to buy.

Festive car loan

Many banks offer festive loan schemes in the month of December, as it is a known fact that car sales happens more in this month. However, many buyers are not aware of the fact that festive car loan schemes are often limited period offers, which is mentioned under the 'conditions apply' disclaimer.

Therefore, if you book a new model in the month of December, and wait for a month or two to get the car as per the dealer's waiting period, you might lose the festive discount.

The buying dilemma can be simplified if you understand the advantages and disadvantages of buying in December. With festive season discounts on offer by almost every car manufacturer, it is a hard-to-resist temptation and worth it in case you plan to own the car for a long term.



The writer is CEO, BankBazaar

First Published: Sat, December 26 2015. 22:49 IST
RECOMMENDED FOR YOU