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Top 11 Factors to Consider When Deciding Between a Used vs New Car

Top 11 Factors to Consider When Deciding Between a Used vs New Car
Having your own car provides a unique sense of freedom. However, purchasing one is one of the most expensive investments a person can make in their lifetime. Whether you want to buy a mid-sized hatchback or a king-sized SUV, you will need several lakhs of rupees. If you cannot afford to spend such a hefty sum upfront on your dream car, your other option is to look into the used car market.

The popularity of used cars has grown in recent years. And those who are familiar with a car's nitty gritty understand why. In this blog, we have performed a detailed comparison of both used and new car options to help you make an informed decision whether you want a used car vs a new car in India.
 

Should I buy a new car or a used car?

 
Many factors contribute to determining the answer to this question. We have described some parameters below to help you decide between a used and new car.
 

  1. Depreciation

    Let us begin with the most common concern – depreciation – that significantly reduces your asset's worth and performance. It happens due to the normal wear and tear your vehicle or other movable and immovable assets endure over time. According to various car experts, your new car depreciates around 60-70% after the first year of ownership. But it does not significantly depreciate after that. So, is it a wise investment to spend between Rs 10 lakhs and Rs 20 lakhs on a new car? Perhaps not. You are better off spending so much money on a used car with better features.
     

  2. Insurance cost

    A vehicle’s insurance cost is directly proportional to its market value. As new cars are more expensive than used cars, so is their insured declared value (IDV). The IDV is the maximum amount your insurer will pay if you file a claim for a damaged car repair caused by an accident or natural disaster.
     
    Higher IDV means the insurer's liability increases, so they charge a higher premium to make up the difference. Again, in the context of a car insurance premium, buying a second-hand car is advantageous. Remember that car price is not the only factor influencing the insurance premium. The place of vehicle registration, make and model, and manufacturing year are some other crucial factors.
     
Also Read: 7 Things to Keep in Mind While Calculating a Second-hand Car’s Price
 

  1. Maintenance

    Many people overlook the running costs for used cars vs new cars. A new car requires less maintenance during the first few years of ownership and is also covered by free servicing and a warranty. But this is not the case for used cars. However, if you can get a used car with a warranty and free servicing, go for it instead of a new car.
     
    If you are looking to buy a used car, make sure it is not too old. In addition, negotiate with the used car dealership for providing free service for a few years. Purchasing a pre-owned vehicle that is only two to three years old will also provide you with warranty coverage.
     

  2. Upgraded model

    Assume you have a large family that can only fit in an SUV car model. However, your budget for a new car is only Rs 7 lakh to Rs 10 lakh. When looking at the top SUVs on the market, you will not find any in this price range, except for a hatchback or an entry-level sedan. In this case, the best option is to buy a used car. You can easily fit a three to four-year-old SUV model in your budget. However, to buy an SUV with a variety of high-end features, your budget will have to be slightly exceeded. If increasing your budget is not an option, you can always get a used car loan.
     

  3. Reliability

    New cars are undeniably dependable. When a car is manufactured, its chassis is tested for durability, the engine is tested for cooling capability and exhaust emissions, and an EMC test is performed for electrical interferences. The car is also subjected to tests involving leg and head impact, brake light position, and headlight intensity, among other things.
     
    In addition to the above quality control measures, new cars come with a few years of warranty against manufacturing defects. All this makes a new car preferable to a used one. But this does not necessarily imply that pre-owned cars are inferior. You do not have to worry about how a used car was handled in the past if you buy it from a certified dealer or the manufacturer's used car outlet. You may also receive an extended warranty when buying the car from such places.
     

  4. Customisation benefits

    If you enjoy experimenting with your car but are on a tight budget, you can fulfil your desire by purchasing a used car. The used car market provides a wide range of options for cars with numerous high-end aftermarket modifications. 
     
    For example, you can get suspension upgrades, performance tyres, window tinting, seat modification for differently abled, and many other customisations in a used car. And that too without paying any additional price. If you were to customise your newly purchased car with such options, the cost of customisation alone would easily reach a few lakhs of rupees.
     

  5. Registration costs

    In addition to the vehicle cost, you must pay registration fees, road tax, and other charges when purchasing a new car. Then you must also pay state development fees, charges for high-security number plates, and FastTag fees. While many of these charges are minor, the road tax can significantly impact your budget.
     
    Road taxes vary by state. In many states, if you buy a car worth more than Rs 10 lakhs, you must pay 15% in taxes on the car's showroom price. However, if you buy a used car, you will not have to pay many of the charges listed above. The reason for this is that the first buyer of the car would have already paid for them at the time of purchase.
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     8.High-End features

With the rate at which car manufacturers are releasing new models with high-end features every month, the features in a car released six months ago will become obsolete in a matter of months. And if you expect a used car to outperform new models in terms of specifications, accessories, and equipment, you may be disappointed. As a result, when it comes to high-end features, a new car always has an advantage over a used car.
 

  9. Value for money

When making a new vs used car buying decision, you must consider the factors listed above that contribute to the car’s overall cost. Compare the costs of depreciation, maintenance, and operation. If you pay close attention to these parameters, you will find that buying a used car from a certified car dealer is better than buying a new car and is much easier on your wallet.
 

    10. Mileage and performance 

The mileage of a car degrades over time. As a result, the performance of a new car during the initial years of ownership may not be the same after three to five years. The primary cause of poor performance is the engine's wear and tear, battery damage, poor road conditions, and a few other factors. But if you buy a pre-owned car that has been well-maintained and thoroughly inspected, you can expect it to perform better.
 

   11. Financing options

There is a lot of misinformation out there about used car financing. Many people believe they will be unable to obtain financing for a pre-owned car. Others are afraid that even if they are approved for a loan, they will be charged a high used car loan interest rate. 
 
To dispel this myth, many financial institutions now readily offer used car loans. They also provide a competitive interest rate based on your earnings, credit profile, and the used car's health. 

Also Read: A Really Helpful Checklist for Buying a Budget Second Hand Car

To conclude 

 
You must first consider your budget and needs when deciding between used and new cars. If you wish to get your dream car at a low cost, used cars are always the best option. However, before you buy a used car, make sure it is from a reputable dealer and that you have gone over all its crucial documentation. You should also take the car for a test drive to check if the engine is in good condition and that the mileage is as expected.

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Did You Know

Disbursement

The act of paying out money for any kind of transaction is known as disbursement. From a lending perspective this usual implies the transfer of the loan amount to the borrower. It may cover paying to operate a business, dividend payments, cash outflow etc. So if disbursements are more than revenues, then cash flow of an entity is negative, and may indicate possible insolvency.

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