How A Certified Used Car Makes More Economic Sense
Broadly speaking, there are 3 types of used car seekers in the market
1. First Time Buyer (FTB)
Someone who is planning his first car arguably from a 2 wheeler perhaps thinks that it is safer to get hands on driving lessons with a used car firt
2. Segment Jumper
Someone who has a fixed budget for a car but wants to experiment upper segments say 5.5 lakhs for a new Wagon R OR 5.5 Lakhs for a pre-owned Ciaz
3. New Like Buyer
Someone who has a new car in mind within his budget but wants to save money on a new like very little driven pre-owned car, say 10.5 Lakh for a new Ciaz versus 8 Lak for a 1 year old Ciaz
Now while purchasing buyer may or may not want to exchange his existing vehicle, may or may not want car finance etc. The one thing that reverberates in all other type of purchase style that you save a lot while opting for a used car under certain conditions ( what these conditions are will be self evident by the end of this article).
For the time being let’s calculate the total cost of ownership of a car in both scenarios of new/used purchases.
Assumptions Used
- Your total lifetime of ownership of the said car is 3 to 5 years
- We are talking about only certified and great quality used cars here (which eliminates the unseen variables to a great extent)
- Say youre paying upfront without any loan etc (We can add a small factor of interest cost later as used car interest rates are marginally higher).
|
New Car |
Used Car |
|
Ex showroom cost |
Ex showroom cost (depreciated from new car) |
|
+ Insurance |
+ Insurance (Sometimes existing ins is available) |
|
+ Road Tax |
+RC Transfer charges (road tax is already paid up) |
|
+ Incidentals |
+ Minor Repairs (very little if certified car) |
|
+ Some accessories |
+ Some accessories (Little or no if it’s a top variant) |
|
-Depreciation of 3 to 5 years (40 to 50%) |
- Depreciation of 3 to 5 years (35 to 40%) |
Looking at the above tabular comparison, it is self evident that buying a used car in the same budget not only gives you a higher segment vehicle buy also helps you save atleast 50% cost of ownership
Total Cost of Ownership (T)= Purchase Price (P) – Depreciated Residual Value (D)
Having said that, used car purchase decision is invariably a give and take of sorts.
|
New Car |
Used Car |
|
Low Cost of finance rates |
At least 2 to 4 percent higher rates |
|
85% to 90% funding maximum possible |
Upto 100% funding possible |
|
Funding on ex-showroom price |
Funding at On- road price |
|
Low cost of maintenance in initial years |
Marginally higher cost of maintenance |
|
Higher cost of insurance renewals due to high IDV |
Low cost of insurance renewals due to low IDV |
|
Steep depreciation in rupee as well as %age terms |
Depreciation is not so steep |
Takeaways
So in a nutshell we see that the total cost of ownership (T) is almost double in the case of going for a new car. So does it mean everyone should buy a used car only? Hell No! A new car makes sense if
- You plan to keep the car for more than 5 years
- If you don’t find a certified vehicle in your budget
- If your running per day in km needs you to install CNG etc
For more information on when to plan for a retrofitted CNG in your used cars, check out our blog/ edu-portal.
