Essential Guide for Buying a Used Car

Now is a great time to buy a used car in India. With easy financing options and a wide variety of options to choose from, the Indian used car market is definitely attracting more customers than it had a decade ago.

A pre-owned car today is considered a good deal because of several reasons. Among them, the major one is that most pre-owned cars being sold today are in good condition. That is primarily because approximately 40% of customers change cars within four to six years, followed by approximately 30% who do so in two to four years. With relatively recent models now available in the pre-owned car market, the chances of landing a good deal are pretty solid.

1. Advantages of purchasing a used car
2. What kind of car should you buy?
3. How to finance the purchase of a used car?

Advantages of Purchasing a Used Car

A pre-owned car usually opens the door for two-wheeler owners, opting for an upgrade

to a four wheeler. Apart from the upward mobility factor that a four-wheeler offers, there are other major advantages that creates value for the consumer.

A major benefit of purchasing a pre-owned car is that it has already undergone the initial depreciation. While a new car loses 10-20% of its value the second it is taken out of the showroom, a used car can usually be sold at the same price that you bought it at since its value depreciated way before you even purchased it. Even the tax rate that applies to pre-owned cars is lower as compared to new cars, which makes it an even better deal if you have budget constraints.

With new makes and models of cars launching periodically, more people want to sell their existing cars and own a newer model or make. This adds more varieties of cars into the used car market, thereby presenting you with a multitude of choices. It also lets you upgrade to a better model in a different segment, which would not have been in your budget had you purchased a new car. Now that we have reasoned why buying a pre-owned car is a good idea, here is a detailed guide to help you buy a good used car.

What Kind of Car Should you Buy?

Now that you have decided to buy a car, it is time to start thinking about selecting a car that is perfect for you. With a multitude of options available in the market it can become difficult to pick the right car. Here are a few questions you should ask to help you narrow down your choices.

• Should I buy a hatchback, sedan or an SUV?
• How much can I afford to spend?
• How old should the car be?

These questions are imperative in every buyer’s checklist. The type of car you want to buy should mainly depend on your lifestyle and your budget. You should think from the perspective of using the vehicle for the next few years. Any lifestyle changes that happen in those years can be affected by the choice you make now. Consider your future needs and weigh all your requirements well. Once you have a model or type in mind, analyse how much you can afford to spend on the vehicle. It is advisable to find a model that fits in your budget and that you do not overextend yourself financially.  

If budget is a concern, a smaller car that is not older than three years would be a better option instead of an older and bigger car. Bigger cars come with higher running costs including fuel consumption, tyre replacement, maintenance, etc. Size is a big determinant of the cost when it comes to used cars as well. For example, a hatchback will be cheaper than a sedan and a SUV will be costlier than a sedan. The price will also vary depending on the make, model and age of the car.

How to Inspect the Car?

The most important thing to do before you buy a pre-owned car is to get the car inspected by a certified technician. While an online inspection is always easier, it will only help you get a quotation for the car based on the make, model, manufacturer and the year of purchase. However, nothing is better than a vehicle’s physical examination to get an accurate estimate. Although used cars come with some wear and tear, it is imperative to inspect it thoroughly before making your choice to ensure there are no underlying issues. The following stages of inspection have to be carried out:

• Hire a technician: Hiring an expert mechanic is the best idea, especially when you are uncertain of the car’s condition. Any important details such as a problem with the steering mechanism, braking system, clutch and gears etc. can be easily identified by an expert technician. Besides, they can give you a fair quotation of the car’s on-road value.
• Take the car for a drive: A physical examination includes taking the car for a test drive. Do this on different types of roads and terrains to assess its performance under various conditions. If the car engine starts immediately, it is a good sign. Also see if there are any unusual vibrations and sounds from the engine, shaky steering issues, signs of brakes pulling etc. Let the mechanic do the test drive for a quick and efficient analysis. For a manual transmission car, experiment with the multiple gears to see how it performs.
• Check the interiors and exteriors: For a used car, interior and exterior examination is a crucial step. Examine the interior for issues related to the steering wheel, gear and brake system, clutch, etc. Also check other parts such as seat belts, car horn, hood, side mirrors, AC and heater, windows, seats, airbag indicator light, windshield wipers, headlights etc., and accessories such as music system, navigation system and speakers. Make sure the odometer reading is not more than 100,000. Before leaving, check if the car doors and handles lock properly. For exterior examination, check for rusts, dents and scratches on the body. Also examine the car exhaust system, shock absorber system, and also look for any fluid leaks.
• Ask for the car’s history: A pre-owned car’s accident history and service history are crucial determinants of its value. Cosmetic damages can be ignored if they are not so obvious. A car which has undergone a direct collision or major repair will cost much less. It is important to pay much attention to this detail as its physical appearance must not trick you into buying it. Any potential troubles that can arise out of the car in the future can result in another major repair. Examine the car’s insurance history and service history. Huge insurance claims mean that the car has undergone a major repair. A car in good condition must have undergone regular service check-ups and maintenance. Those with genuine spare parts are also a good bargain.
• Check the car’s documents: Another important aspect to look for is the car’s documents. Apart from the insurance documents, look for registration papers and match them with the engine number and the chassis number. Also check for important details like any existing car loan, the Pollution Under Control (PUC) document and related tax documents to see if all the mandatory requirements to drive the car are in place. If the car is equipped to run on CNG/LPG, you need to get the bi-fuel certification as well.
• Check the liens against the car: If any car loan exists for the vehicle, it must be hypothecated to the loan lender. In such a case, the existing car owner must clear the dues and get NOC from the lender to clear the existing liens and to get it under your possession. 

Registration and Insurance Documents

Registration Certificate

The registration of a vehicle is proof of its ownership. Every vehicle, old or new, has to be registered with the Regional Transport Office or RTO. Registering the car is legally mandatory in our country, and so it is important to transfer the ownership of the car to your name while buying a pre-owned one. To change the ownership of the car, the seller has to provide you with two signed copies of Form 29 and a signed copy of Form 30. The completed forms can be submitted at the RTO. If the car is being transferred from another state, you require Form 28. It is the No Objection Certificate or NOC obtained from the state from where you are buying it . You need to submit it at the RTO near your place of residence. This is to confirm that there is no objection on transferring the vehicle to another state.

In case there is a pre-existing loan on the car and it is not cleared yet, the buyer has to get Forms 32 and 35 completed and signed. The seller has to pay the dues and get the NOC from the car financier. These documents will remove the hypothecation from the vehicle’s registration documents. In the absence of these documents, the buyer will be held responsible for the rest of the loan repayment.   

Insurance

Once the registration of the car is in your name, you need to get it insured in your name as well. It is no longer valid if the insurance policy is still under the name of the previous owner. If the existing owner has insured the car and if it is in their name, get it transferred to your name while transferring the ownership of the car. You can use Forms 29 and 30 for this purpose. In case the vehicle is not under insurance at the time of purchase, you can buy a fresh policy of your choice. All that matters is that the car is under insurance when you drive it on the road.

How to Finance the Purchase of a Used Car?

If you have ready cash to make the purchase, you can always go for direct payments and own the vehicle from the day of purchase. However, not everyone can afford to do so, and in such cases, a used car loan is the best option. Most lenders have a hassle-free process to submit the documentation and to approve the loans. If you meet their eligibility criteria, you can apply through a reputed lender and avail the loan at attractive interesting rates. Until the loan is paid off, the car will be hypothecated to the lender.

What Should you Keep in Mind While Taking a Used Car Loan?

It is essential to get the car valued while applying for a used car loan. This helps the financier assess the current value of the car and estimate the eligible loan amount for the car . The eligibility and interest rates of car loans vary from one lender to another.

Eligibility: The financial institution you are availing the loan from sets the eligibility for a used-car loan. In most cases, salaried individuals and business professionals with an impressive credit history are eligible.

• Loan Process: The loan process involves checking your eligibility, submitting the necessary documents, the car’s valuation, etc. to determine how much you are eligible for, and consultations to determine the rate of interest and the EMI. Once you submit the documents, the lender will scrutinize and verify them for approval. Upon approval, you will get the loan amount within a day or two. In some cases, the process involves a one-time documentation or processing fee.
• Loan Amount: Most lenders give up to 90% of the valuation of the car as loan. This loan to value or LTV changes depending on the lender you choose. While looking for lenders, prioritize the ones that offer the best interest rates and LTV. 
• EMI: It is the Equated Monthly Instalment that you will be paying in order to finish up the loan. The amount will be the same until the end of the loan tenure. However, the more principal amount is paid up, the more will be your principal contribution towards EMI and lesser the interest.
• Offers and discounts: At times, lenders sell their loan products on offers that might give discounts on the rate of interest or waive off of the processing fee involved. Or it could be an offer to waive off the penalty that you might otherwise incur in case of loan prepayment.

Documents required: Loan applications are subject to approval based on the documents that you submit, which includes your KYC documents, salary and bank statements, etc. The process also involves submitting a duly filled application form signed by the borrower. Some lenders might ask for additional documents depending on the terms and conditions specific to them.

At Hero FinCorp, we offer used car loans of value up to 175% of the second hand car loan. Our range of loans are available for both certified and non-certified used cars and are available for tenures of up to 5 years. Indian citizens, both salaried and business professionals, above the age of 18 are eligible to apply for our loan products. We offer flexible terms and repayment options, faster loan approval times and attractive interest rates on our loans. To apply, submit your details online so that our loan officer can get in touch with you. You can also walk into a nearby Hero FinCorp branch with the necessary documents to apply for a loan.

A used car is an investment that you will probably hold on to for a few years. In that case, taking ample time to narrow down your choices, verifying the authenticity of the vehicle, examining the condition of the car, verifying the documentation of the vehicle, and opting for the right financing option are important steps in the process.