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Does Your Car Pass The Test? Top Things You Should Know About Your Purchase

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Published on May 17, 2021. EST READ TIME: 3 minutes

If you have been planning to buy a car, the time is now. No, not because a new model has been launched into the market or the prices for the cars have been slashed; it is because we are living in a pandemic world. Each day, Indians need to navigate life amid the Coronavirus pandemic, and having a car means having the freedom to travel while being protected from germs often found in rideshare programs or public transport. However, when it comes to buying a car, the decision is not easy.

Buyers, first time or experienced, are frequently perplexed about its cost-effectiveness, i.e. the expense of the car versus its usage. Thus, while purchasing a new car is an adrenaline rush, the market for a used car is expanding. In this article, we walk with you as you make an important decision that may affect your finances over the next several years.

To begin with, let us discuss the advantages and disadvantages of purchasing a new car

Advantages:

#Number 1: Cars are equipped with advanced technology and features

Technology is advancing fast, and what might seem relevant today can become outdated in less than a year. But, when you purchase a new car, it comes equipped with state-of-the-art technology in terms of equipment and accessories. On the other hand, you may save money on purchasing an old car, but a feature upgrade would cost you extra. In short, if you are a technology enthusiast, purchasing a new car is a better option.

#Number 2: Cost of maintenance is lesser than a used car

For a new car, there is no maintenance required for at least six months to a year, depending upon the usage. Also, when you purchase a new car, the first few services are usually free. On the other hand, an old car would have to undergo regular servicing to increase its efficiency. Frequent services such as changing engine oil, changing the battery, cleaning of air filters etc., can be expensive for a car owner who may have purchased an old car with the intention of saving money.

#Number 3: Increased number of financing options

When you decide to purchase a new car, automakers have tie-ups with finance providers to offer deals to entice buyers. New car loans have better interest rates, which are also lower than those on the used cars. Additionally, you also get offers such as assured buyback which may not be available for the used car segment.

Disadvantages:

#Number 1: Rate of depreciation is higher for a new car

The rate of depreciation for a new car is surprisingly higher than an old car. A newly purchased car depreciates about 20 percent per year, with maximum depreciation happening in the first three years. On the other hand, the depreciation rate of an old car cannot be counted, as the damages and maintenance determine the price of the car at the time of its resale. For example, if you buy an old car and maintain it well, you can sell it for almost the same price in a year.

Now, let us discuss the advantages and disadvantages of purchasing an old car

Advantages:

#Number 1: There are no hidden surprises

Since the used car model has been in the market for long enough, even preliminary research will help you understand if the car has any gaping issues. On the other hand, car buyer of a new car is always in for a surprise as there are limited reviews on the model’s performance, durability etc.

#Number 2: No additional cost of ownership such as registration fee or road tax

The cost of purchasing a new car has multiple costs attached to it, such as the registration fees, road taxes, RTO fees etc. However, if one purchases a used car, the owner does not have to worry about expenses as the first owner already pays them.

#Number 3: No depreciation and great resale value

Since the previous owner has already experienced the biggest slump in cost due to depreciation, you might be spared. You may not experience that much cost depreciation in further years which might make you cherish your ride or even sell it for almost the same amount you paid for in a few years.

Disadvantages:

#Number 3: There are reliability issues

The biggest downside of buying a used car is that it might not be as reliable in terms of performance, mileage etc. More often than not, a used car is a compromise because you do not know how the previous owner treated the car, and you may need to do more repairs to match it up to your satisfaction.

Final Verdict: Which gives a better value of money - new car or old car?

Since, unlike other assets, the value of a car depreciates each year, the decision of buying a car eventually boils down to its cost-effectiveness. Thus, the biggest thing you should consider when buying any car is the total cost of ownership. Doing a price per kilometre calculation gives an apple-to-apple comparison of the cars you are considering. For instance, comparing the cost of buying (down payment, loan amount, registration fees, other taxes), cost of running (fuel efficiency) and cost of maintenance (maintenance cost, insurance), and inflation-adjusted sale value between potential vehicles will show you which car gives you a better value of money.

Tips to Purchasing a New or Used Car

• Check reviews and ratings of the vehicle that you are considering

• Check the cost of repair and insurance of the vehicle

• Check the performance of the car by taking it for a test drive

• Check the financing options and be prepared to haggle on the costs

Conclusion

Purchasing an old car makes sense when you are new behind the wheels, or your usage can result in early wear and tear of the car. On the other hand, purchasing a new car makes sense when you are a car enthusiast or ticking off a life goal. Whatever be the reason, ultimately, the decision to buy a car rests on the buyer.

At this point, all we can advise is that before making a final call, understand your needs and conduct extensive research to find the best deals. Additionally, car insurance should not be overlooked. Apart from being mandated by law, car insurance protects your car and finances against damages caused by unforeseen circumstances.

Disclaimer: The above information is for illustrative purposes only. For more details, please refer to policy wordings and prospectus before concluding the sales.

This blog has been written by:

S. Gopalakrishnan | Motor Insurance Expert | 40+ years of experience in insurance industry

A veteran in insurance industry, S. Gopalakrishnan is a name to reckon with in the field of reinsurance; he has headed the Reinsurance department and has rich experience in other fields of motor insurance. He loves to share his opinion on the latest topics in the insurance industry and how he can help people in safeguarding their assets using insurance products.

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Few Other Articles:

• Role of insurance in the purchase or sale of a used car

• Confused between Sedan & SUV? Let your car insurance premium decide the David vs. Goliath battle!

• Increasing Vehicle Price May Empty Your Wallet, But Not Your Motor Insurance

• Will Your Location Affect Your Car Insurance Premium? Know More

• Do Older Cars Need Comprehensive Car Insurance?

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