This article has been written by our guest contributor Harsh Singh Chauhan, with help from the Fintuned Editorial team.
I have always been a big fan of cars. You might casually say “Men will be Men” (please don’t take me to be a sexist) but cars are a passion for a good number of people. From the reel life of James Bond to the real life of living legend Michael Schumacher, cars represent a different but special class of machines and there is no denying the fact that a car has the ability to depict some milestone in a person’s life.
Truth be told, I can go on and on about cars but probably, this isn’t the place for it. It is quite obvious that this post is related to cars in some way (who starts talking about cars randomly? Actually I can) and as I mentioned, a decision to get a car represents a significant milestone in a person’s life, even financially. While it is established that a car is an essential financial decision, an interesting dilemma that people face is a choice between buying a new car or a used car.
Choosing a new car has become tougher nowadays. Not only are there a plenty of new cars in each segment to choose from, the used car space is also starting to make a very strong case for itself.
While the feel of driving a brand new car is unquestionable, it almost always makes more financial sense to buy a used car. But is that the right choice for you? To clear your confusion and get you a fair idea, we bring you a comparative study on the benefits and drawbacks of buying a new versus a used car.
For most people, we think it makes more sense to buy a used car (if the car is in a sustainable state), but there are surely some exceptions.
Here are four questions that will help you in taking informed decision.
- Do you have a down payment or a trade-in with equity?
If you go for a new car, the down payment depends upon your credit history as well as the car that you are going to buy. If your credit record is good then you may have less problem buying the new car with insignificant or no down payment.
However, if you go for a used car then such incentives are not on offer in most cases. Financing a used always requires upfront payment. In such a case, a new car may suit you better if you do some research on the incentives available in the market.
- Financing costs of new v/s old?
Banks offer lower interest rates on a new car because the cars are inherently worth more and have not already been hit by depreciation. For example, SBI gives loan for new cars @ 0.60 % above the 1 year MCLR (not relevant enough for you to know). That amounts to 9.80 % p.a. On the other hand the interest rate on used car loan is 4.00% above 1 year MCLR i.e. 13.20% p.a. This makes a lot of difference in the EMI requirements of purchasing a new car v/s a used car.
- How fast does the new car lose its value – depreciation? – MOST IMPORTANT
Cars depreciate in value with each passing month and mile. On an average basis, a new car loses between 20% – 30% of its value the moment it rolls off the dealer’s lot. This number can even go up to 50% for some luxury cars. However, used cars have only little scope for depreciation left on the books. Therefore its book value is not as quickly eroded as compared to a new car.
4. Can you afford to maintain and repair a used car?
No matter how well a car has been cared for, some bits and parts are going to naturally wear out and consequently, the maintenance and replacement costs will be higher for a used car than a new one. For new cars however, carmakers offer free maintenance for a certain amount of time or mileage.
These are four absolutely important questions that you should ask yourself before buying a car. The answers to these questions will definitely help you in making a decision between a new and used car.
Apart from the above mentioned four questions, there are a few other important parameters that should have your attention. This table summarizes the comparison of new v/s used car.
Please note that this table has not been prepared by considering any particular car, company, location or buyer. Hence, the number and position of those red cells could obviously change on that table based on the specifics.
Feel free to express your views in the comments section below and if you have any queries or suggestions then do let us know.