The joys of buying used

Here’s some food for thought. The value of a new car drops between 8-10% the very minute you step out of the showroom. So,even if you buy a one-year-old model,you’ll be missing out on some seriously large losses (around 15-20%of the car’s on-road price) as the biggest drop comes in the first 12 months. Yes,depreciation is the single biggest hidden cost in car ownership which buyers simply ignore or can’t see. It’s actually a bigger cost than even the maintenance or fuel cost of your car. Here’s an example. A brand new Maruti Swift VDi costs R5.75 lakh on-road,Delhi. A two-year-old Swift will be yours for R4.50 lakh at a True Value dealer (with a year’s warranty). That’s about 20%of its original value lost. If you want to learn about the least and worst depreciating cars,then it’s a good idea to visit a multi-brand authorised used car dealership and talk to the salesman.

WHAT’S YOUR BUDGET?

Let’s assume you have R3-3.50 lakh to spend. That amount can buy you a brand new Maruti Alto,Eeco,Hyundai Santro or a Chevrolet Spark. But you want something bigger,with better interiors and more space for the family. Your options include buying a three-year-old Maruti Swift with around 25,000km on the odo. Or,if you want a saloon,then a five-year-old Honda City or Chevrolet Optra with about 60,000km should just about fit your budget. In case you need something bigger,then you could even gun for a six-year-old Skoda Octavia.

The running costs of the used Swift will be closer to a brand new hatchback and understandably lower than the saloons,especially considering that the older saloons would need major suspension and brake repair. So if you decide to buy a five-year-old Honda City with over 60,000km on the odo,then be ready to shell out at least another R20,000 to R30,000 on suspension and other repairs unless you buy from a certified showroom,which would have already taken care of these and would also have factored it in the selling price. Buying a car from a higher segment not only gives you better social presence,but it also means you are safer thanks to the addition of a boot. The saloons also come with better safety kit than entry level hatchbacks. So keep that in mind as well when considering this.

PAY CASH OR FINANCE?

The rate of interest on new car finance is between 10-11% (private banks) and 14-15% for a used car. Assuming that you buy a new car that costs around R5 lakh (say a Maruti Swift VXi) and decide to get an 80% loan on it for five years. You’ll pay about R8,620 as EMI (R5.17 lakh total). You could buy a two-year-old used Swift for about a lakh less. An 80% of R4 lakh works out to around R3.2 lakh. Assuming a rate of 14%,you’ll have to pay R7,360 as EMI for five years (total R4.41 lakh). You will save about R75,000 when buying the old Maruti Swift. Your savings become even greater when you buy a more expensive car. The pricier the car,the more you’ll save on buying a used model even with the higher rate of interest that you’ll pay on finance. Just imagine how much you will save if you go in for a three-year-old Honda Civic,which sells for around R8.5 lakh,instead of paying the almost R14 lakh sticker price for a brand new one?

OTHER ADVANTAGES

The biggest advantage of buying used is that you can choose the price you wish to pay. If you don’t want an unnecessary feature,you can choose not to pick up the car and save on costs. What’s more,you can also haggle with the seller; even certified dealers will give you a marginal discount on the amount that is being quoted on a used car. There are plenty of other advantages too. You won’t have shell out a big amount as insurance premium—a two-year-old car without any claim on it will be insured for a premium of around 30-40% lower than that for a brand new one. You do not have to pay road tax either. All of this adds up to quite a decent amount.

ANY DISADVANTAGES?

A new car will obviously come with benefits of the manufacturer’s warranty,which will repair any major fault free of charge. Such warranties typically give you two to three years’ peace of mind. But if you are buying from a certified used car dealer like Maruti True Value,Mahindra First Choice or Honda’s Auto Terrace,you will get up to a one-year warranty on the car,which will be similar to a manufacturer’s warranty on a new car.