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Should I buy a new car or opt for a pre-owned car ?

Last Modified: Mon, Apr 25 2016.
Should I buy a new car or opt for a pre-owned car ?

  • Should I buy a new car or opt for a pre-owned car ?
  • Should I buy a new car or opt for a pre-owned car ?
  • Should I buy a new car or opt for a pre-owned car ?
  • Should I buy a new car or opt for a pre-owned car ?

This question is becoming more and more relevant, with frequent new car launches and ever expanding customer appetite to upgrade, leading to easier access to better used cars. But how do you decide which way to go. Here are some quick considerations

  • Get it much cheaper than original - Used cars typically are depreciated and are available for cheaper price as compared to a new car. So ideally you can end up getting a good deal, but there is a catch. Since the depreciation doesn't follow a set mechanism, it is important to understand the right valuation
  • Valuation will be a factor of age of car, mileage and quality of product. While there are multiple valuation tools available in the market, Wheel Monk has done a quick analysis1 to identify, how these factors impact the valuation

    • Price is inversely proportional to Age of car (older the car, cheaper it is)
    • Should I buy a new car or opt for a pre-owned car ?
    • Price is inversely proportional to mileage. The factor acts in accordance with age of car, as both these are main reasons for depreciation
    • Should I buy a new car or opt for a pre-owned car ?
    • For Quality, we have tried to take proxy of car verification. The underlying assumption being, verified cars are having a slightly better quality confidence level than non-verified cars
    • Should I buy a new car or opt for a pre-owned car ?

    It's been observed that though verification has some positive impact on expected market price, the main contributors continue to be age and mileage

    For e.g. a 3 year old Swift VDi with 30,000 mileage and external quality verified, can have an expected price tag of 4.9 Lacs, compared to an unverified similar Swift, with expected price tag of 4.7 – 4.8 Lacs2

    Also, it was observed that, typically a mid-segment hatchback, depreciates to nearly 45-50% of its original value in 5 years, with maximum depreciation in 1st year, close to 15% (Please note these nos would vary across segments, brands, models and quality of car. The analysis is only to bring out an understanding of used market)

  • Quality of car- The other critical factor, which we have even mentioned in the last section, is quality of car. While reliability of cars has significantly improved over the years, and a car which has done 40-50K is still considered close to new (considering it has been maintained well), users do have an option to opt for validation services, available at multiple channels

    • Certified Pre-own cars:Most of the OEMs and many third party players have set up an organized channel for used car retailing
      • Advantage
        • -Exhaustive quality and history checks done, and any part replacements or repair work already done to ensure high quality

          -Availability of add-ons like extended warranties, insurance, loan transfers, financing, and registration/transfer of ownership. So essentially act as one stop shop

      • Downside
        • -Costs higher than open market (purchase through agents or individuals)by upto 10-20 %

    • Online Validation Channels: Emerging digital media has also given birth to multiple online channels for used cars, which essentially offer all services offered by traditional brick and mortar stores and that too at a convenience of click. Below are some of the services these guys offer.
      • Car Verification Services at your Door Step
      • Loan and Insurance Offers & Processing
      • Title Transfer
      • Refurbishing
      • Warranty
      • Post Sales Service

Now looking at some cons of used cars -

  • An old car is "Old" - so you will end up buying a generation or two older cars, which in current fast expanding competitive market might have significant differences with the current model. This could be in terms of styling, features, safety etc. So it's critical for buyer to identify their basic needs and ensure they are met

  • Financing and Tax Implications - Used car loans may be more expensive than new car loans. Interest rates are typically higher for used cars (6.5% - 7%). Also since the car is depreciated, buyer who might want to have tax benefits, may end up losing part of it

  • Maintenance - Used cars will have higher maintenance cost. The cost typically increases with year of ownership. But also it is critically correlated to history of car, which brings to last point on verification of car history

Unlike developed markets, it's not easy in India to get easy access to car history or service record/insurance record. So that means it's critical for buyer to get the car tested through a trained evaluators/technicians. Now this could be through existing channels or at personal level, for ensuring that car is not accidental

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Wheelmonk.com is a user centric car discovery platform which enables prospective car buyers make informed choices based on their preferences. With a deep understanding of the Indian automobile market, accurate vehicle data and extensive repository of verified car owner feedback, Wheelmonk.com aims to become the trusted destination for car buyers and enthusiasts. Wheelmonk.com is a user centric car discovery platform which enables prospective car buyers make informed choices based on their preferences. With a deep understanding of the Indian automobile market, accurate vehicle data and extensive repository of verified car owner feedback, Wheelmonk.com aims to become the trusted destination for car buyers and enthusiasts.

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