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Should you buy a used or a brand new car?

While there is the irresistible urge to go for a brand new car, it might not suit everyone’s pocket. Perhaps, you have done a few test drives and shortlisted your favourite model. But you are unable to decide between the new and old. Hop on as we drive you through its pros and cons.

While there is the irresistible urge to go for a brand new car, it might not suit everyone’s pocket. Perhaps, you have done a few test drives and shortlisted your favourite model. But you are unable to decide between the new and old. Hop on as we drive you through its pros and cons.

1. Depreciation effect

Depreciation is a hidden cost and you lose more of it while buying a new car. For instance, if you are buying a new car worth Rs 5 lakh. At the rate of 20 percent depreciation every year, its resale value will be half of its original price (Rs 2.6 lakh). In contrast, if you were to buy a three year-old car of similar make, it will cost you lesser. Moreover, depreciation will be lower (Rs 1.25 lakh) as against that of a new car (Rs 2.44). 

Moreover, new car buyer loses out on the opportunity cost. If extra money incurred in buying the new car is ploughed into equities, it could have yielded Rs 1 lakh more.

2. Maintenance and repair costs

In the initial years, a new car requires lesser maintenance, while the warranty protects you from defective materials or workmanship. However, a used car, over a period of time, might have to incur additional costs – in the form of tyre or battery replacements, changing of brake pad, clutch plate, AC servicing, and so on. Moreover, you need to have the time and wherewithal to fix it.

3. Affordability and Upgrade

Buying a used car is relatively lighter on your pocket. Moreover, you get an opportunity to buy a higher end model for the same budget. For instance, instead of buying a hatchback for Rs 4 lakh, you can think of a four-year old sedan for the same price. Of course, one needs to factor-in other factors like the incremental maintenance costs as well, before resorting to such upgrades. 

Higher the market value of your car, higher is the annual insurance premium. So, if you are buying a new car, you will have to fork out a relatively higher premium. Similarly, for registration of your new car, you will have to shell out a higher amount. 

4. Insurance and registration

Higher the market value of your car, higher is the annual insurance premium. So, if you are buying a new car, you will have to fork out a relatively higher premium. Similarly, for registration of your new car, you will have to shell out a higher amount. 

5. Technology

Buying a new car has its set of advantages. It gives you access to latest technology and features which has implications on the running cost of a car. A fuel-efficient engine can cut your fuel costs over the long-run, while a smart gadget can make driving safer. On the flip side, newly launched models also come with the risk of having manufacturing defects. 

6. Don’t ignore resale value

Resale value of a car is a function of its demand and supply in the secondary market. More popular the car manufacturer, greater is the supply of its cars in the secondary market. However, all car models don’t get depreciated at the same rate. 

Market value of a car is derived from many factors including its age, model, kilometres driven, condition of the vehicle, and city of registration and if you are its first or second owner.

So, if are buying a used car, ensure it has considerable demand in the secondary market. It would help you sell it off without any hiccups. 

Interestingly, some manufacturers let you upgrade your car from their offerings by selling the old one at a predetermined price after a few years. However, do the necessary due diligence before signing the dotted line.

7. Reliability

Buying a used car entails doing thorough inspection by a mechanic to check its condition. Even after doing so, still there is scope for misfortune. In contrast, a new car doesn’t need any inspection. While various car portals give estimated price of your used car, based on various parameters, what you actually get might be a lot lesser.

Takeaway

In short, car is not an investment, so don’t go overboard on your budget. Consider pros and cons of buying a new or a used car before signing the dotted line. 


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