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Insurance Article

Why is it Beneficial to Opt for A Second-Hand Car Instead of a New One?

April 03 2019

Opting for a used car leads to more savings and enables you to buy a premium model in the same budget.

When it comes to buying a car, you need to take a lot of crucial decisions, such as, what will be your budget, the type of car you wish to purchase, the make, model, and colour of the car, and whether you will make the full down-payment upfront or avail the services of a car loan. One such important choice that you need to consider is whether you would like to purchase a new car or opt for a second-hand car.

While purchasing a brand-new car can be an exhilarating thought, opting for a 2nd hand car has its own advantages. According to the market surveys, the used car sales in India have gone up by 50% during the past one year, mainly due to the entry of organised players in the segment and greater assurance of the vehicle being sold. Read more to know about the 7 major benefits of buying a second-hand car instead of a new one and how it can be a smart decision for you:

Facilitates affordability and savings

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The most specific advantage of opting to purchase a second-hand car instead of a new one is that it facilitates more affordability and hence, increases your savings. You can own a pre-owned car of your preferred make and model at a much lesser price when compared with a new car of the same model. For example, you can own a 3-year old Maruti Swift Dzire at an approximate price of Rs.3 to 3.5 lakhs whereas the new car will cost you around Rs. 6 to 8 lakhs, depending upon the variant.

Minimizing the depreciation of your vehicle

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The value of a new car starts depreciating from the moment it is driven out of the showroom. Typically, the market value of a car decreases by about 20% per year for the first few years after its purchase. This means that a new car will lose roughly 50% of its value during the first two to three years. Though various cars have different depreciation rates, some luxury cars have a steep depreciation rate over the first few years.

Cars that are in low demand also lose their value quite significantly over time. You can avoid that hit by buying a second-hand car as it would have already suffered its maximum depreciation by then and will not lose much value in the forthcoming years. Some of the factors that you should keep in mind before calculating the depreciation and buying a second-hand car at much cheaper rates include:

  • Brand: Some brands have prolonged value due to their popularity, while others lose their value significantly due to increasing competition. Thus, thorough research can get you close to 60 percent of a car’s price in three years.
  • Vehicle Condition: It is recommended to check the fuel exhausts and any oil leaks before choosing your second-hand car which gives you the power to bargain better and save money on future repairs
  • Performance: A car offering better distance per liter of fuel is your best bet as it will not only save you money but is also an indicator of a car’s good performance.

Avoiding the registration fees and other charges

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When you buy a new car, you will have to make numerous payments to the Government, such as one-time registration fees, road taxes, and other RTO charges which swell up the on-road price of the vehicle. Opting for a used car is instead a better option to avoid these extra charges as it would have been already paid by the first owner of the vehicle. This, in turn, will help you get full value for your money and you don’t need to shell anything extra out of your pocket to take your favorite car out for a spin.

Document Checklist for Buying a Second-hand Car

Second-hand car buyers should check the following documents thoroughly before confirming the purchase:

  • Registration Certificate
  • Purchase Invoice of the car
  • All documents for existing insurance policies
  • Documents for the service history of the car
  • Forms- 28, 29, 30, 32, 35
  • Invoices for Road Tax
  • Pollution Control Certificates
  • Owner’s Manual

Full assurance and warranty for the vehicle

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Some years ago, second-hand cars were considered a ‘junk’. However, the situation has improved vastly during the past two to three years due to the entry of organised players in the market. Especially with emerging online used car dealers, you will be provided full assurance about the durability of the vehicle and some dealers even offer a limited warranty on the cars sold. The vehicles are also tested thoroughly for quality and sustainability before being handed over to the customers.

Add-on installations at no extra price

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Many vehicle owners install add-ons like a protective film on windscreens, spoilers, bumper-guards, alloy wheels etc. They not only provide an additional protective layer to the car but also add to its looks. If you try to install these features in a new car, you will have to shell out a hefty sum of money. On the other hand, you can get a second-hand car with pre-installed accessories at no extra cost.

Reduced rates for car insurance premiums

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The motor insurance premiums are calculated on the basis of the market value of the vehicle. This is why the insurance companies charge higher premiums for insurance policies of brand-new car owing to their high market value.

On the flip side, the value of a pre-owned car would have already undergone a significant depreciation over the years and hence, you can get it insured at a much lower price by quoting a nominal IDV or Insured Declared Value for the vehicle. However, there are a few points that you should keep in mind while opting for vehicle insurance for a used car:

  1. Transfer of the Policy: It is crucial to get the policy transferred in the name of the new owner. In most cases, it is tough to change the features and benefits of the policy before it ends but the name of the owner must be changed before one purchases the car.
  2. Read the claim history: It is recommended to call the insurance company and cross check any claims made against the existing policy number. A comprehensive car insurance will save your used car from various risks and prevent you from financial losses.
  3. No Claim Bonus: If No Claim Bonus is already availed by the original policyholder during then premiums will get reduced at the time of policy transfer to the new owner, taking into account the recent condition of the car.

Contribute to Environment

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Apart from helping you save money, opting for a pre-owned car also works well for the environment by reducing the carbon footprint. The primary fraction of carbon dioxide produced by a car occurs in the manufacturing and initial shipping process. Hence, when you opt for a second-hand car, you are eliminating the two of the biggest polluting factors, thus minimizing impact on the environment.

Having said that, it’s prudent to take a test drive by yourself and get the car checked by a mechanic thoroughly before buying it to avoid any gremlins in the future.

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