Buying a car? A used one could still save you 20-25% over five years

Rising new-car prices are driving first-time buyers to the used-car market, which is expected to cross 7 million sales this year

If you're planning to buy a car this year, the biggest savings may not come from negotiating with a dealer—they may come from buying a used vehicle. Despite changes in the Goods and Services Tax (GST) last year that narrowed the price gap between new and pre-owned cars, used hatchbacks and sedans still cost around 25% less to own over a five-year period than comparable new models, while used SUVs and utility vehicles remain roughly 20% cheaper, according to a CRISIL Ratings analysis.

 

That affordability advantage is expected to keep India's used-car market in the fast lane. CRISIL estimates organised and unorganised used-car sales will grow 7-9% this financial year, taking total volumes beyond 7 million vehicles, with used-car sales continuing to outnumber new-car sales.

 

 

Why more buyers are choosing used cars

 

The report says affordability remains the biggest driver.

 

New car prices have steadily risen over the past few years because of stricter emission norms, rising input costs and additional safety features. As a result, many first-time buyers are opting for nearly new vehicles that offer similar features at significantly lower prices.

 

According to CRISIL, nearly two out of every three used-car buyers are first-time car owners, suggesting that pre-owned vehicles are increasingly becoming the entry point into car ownership.

 

Another advantage is quality. The average used car sold today is around four years old, compared with more than eight years a decade ago, thanks to faster replacement cycles and frequent model upgrades. That means buyers now have access to newer vehicles with better technology and safety features than was possible a few years ago.

 

The hidden savings

 

The report argues that the financial advantage extends beyond the purchase price.

 

Even after last year's GST rationalisation reduced the price difference between new and used vehicles by 4-6%, pre-owned cars continue to offer a significantly lower total cost of ownership over five years.

 

For buyers with a fixed budget, that often means stepping up to a higher variant or a larger vehicle than they could otherwise afford.

 

For example, instead of buying a new entry-level hatchback, a buyer may be able to purchase a well-maintained mid-spec or premium hatchback that's only a few years old. Similarly, someone considering a new compact SUV may find a larger, better-equipped used utility vehicle within the same budget.

 

"Demand for used cars is expected to remain strong despite Goods and Services Tax (GST) rationalization last fiscal, which narrowed the price gap with new vehicles by only 4-6%. Our analysis indicates that over a five-year ownership period, used vehicles continue to maintain their superior affordability with hatchbacks and sedans remaining 25% cheaper than comparable new vehicles, while utility vehicles (UVs) offer savings of around 20%. This overall cost benefit is enabling buyers to access higher-specification vehicles at a lower cost of ownership through the used vehicle route.Supply is also keeping pace, with the average age of used cars sold now around four years, compared with eight plus years a decade ago. Faster model refreshes, shorter ownership cycles and healthy new-car sales are replenishing the market with younger, higher-quality vehicles," said the report.

 

Buying a used car is becoming less risky

 

One of the biggest deterrents to buying a used vehicle has traditionally been trust.

 

That is gradually changing.

 

CRISIL says digital marketplaces have improved transparency through vehicle inspections, verified ownership histories and easier financing options, helping organised players increase their share of the market.

 

Organised companies now account for around 26% of used-car sales, up from 20-21% in FY22, although the market remains dominated by unorganised dealers and direct transactions.

 

"Organised players are increasingly balancing growth with profitability. Marketplace players turned profitable last fiscal, while inventory-led players, despite the higher costs of inventory ownership, are narrowing losses through tighter cost discipline and a greater focus on sustainable growth. Reflecting this divergence, inventory-led platforms raised ~Rs 3,000 crore over the past two years, whereas marketplace players required no external funding. Going forward, capital raising is expected to be driven increasingly by expansion rather than funding operating losses," said Poonam Upadhyay, Director, Crisil Ratings.

 

What buyers should check before signing the cheque

 

While used cars can offer better value, experts say buyers should avoid focusing only on the sticker price.

 

Before finalising a purchase, check:

 

• The service history and maintenance records.
• Whether the car has been involved in an accident or major insurance claim.
• Number of previous owners.
• Outstanding loans or hypothecation on the vehicle.
• Insurance validity and claim history.
• Tyre, battery and brake condition, as replacing these soon after purchase can significantly increase ownership costs.
• Compare the on-road price of a new vehicle with the total cost of the used car, including registration transfer, repairs, insurance and financing.

 

A market with room to grow

 

India's used-car market still trails developed economies.

 

While used-car sales exceed new-car sales in India, the country's used-to-new car sales ratio remains just above 1, far below the 2.5-3.5 times seen in mature markets.

 

According to CRISIL, greater financing availability, higher leasing penetration and the continued expansion of organised used-car platforms could drive further growth over the coming years.

 

"Used-car volumes are expected to grow 7-9% this fiscal, led by first-time buyers who account for nearly two-thirds of transactions. Rising new vehicle prices and affordability considerations are supporting used car demand from buyers seeking an economical route to car ownership, while also enabling access to higher-specification vehicles at lower prices. Greater digital adoption has improved transparency, inspection standards and financing access, helping formalize a market long constrained by trust concerns," said Anuj Sethi, Senior Director, Crisil Ratings.