These pros and cons can help you overcome your confusion.
Photograph: Rebecca Cook/Reuters
A new car might be very tempting, but the fact is that a greater number of used cars are sold than new ones. Buying new or used, both have their own benefits and drawbacks. Your budget, the amount you can afford as monthly installments, how you want to use the car etc. many such considerations go into taking the decision to buy a car.
If you are also one of those thousands, who face this dilemma everytime they go out to buy a car, here are the benefits and drawbacks of buying used or a new car.
Benefits of a buying new car
The experience of being the first owner and no problems associated with shady pasts, mechanical problems or any accidents.
The model is latest and has all the recent gadgets, accessories and safety measures.
The car comes with a comprehensive warranty directly from the manufacturer for a longer duration. So, there is someone to bank upon in case the vehicle gives trouble.
Drawbacks of buying a new car
The price. It will always be much much higher than a used car.
The depreciation. The car value will instantly decrease by 20 to 40 percent the moment you buy it.
The cost of insuring a new vehicle and installing protection measures against theft will definitely increase the cost.
Benefits of buying a used car
Buying a used car won't hurt your pocket much. It will definitely be less expensive compared to a brand new model. So, in the same amount as that of a new car one can get higher range models, or maybe a luxury edge.
The depreciation in used car is considerably less than that of a new car. Hence, it retains most of its original value when you want to resell it.
The insurance costs for a used vehicle are less.
Drawbacks of buying a used car
It is an old car and won't carry the same amount of features and latest gadgets.
The maintenance, accident and ownership history can't be easily verified, thus making it a risky proposition.
The maintenance costs associated with a used car are generally higher than a new car. This increases the ownership costs of the car.
The extra costs of a used car loan
Though the used car loan might be of a lesser value due to the low cost of the vehicle, it is definitely not a cheap loan. Here are few things that makes a used car loan costlier.
The interest rates associated with used car loans are higher. While one can have a new car loan with interest rates in the vicinity of 14 per cent, used car loans have higher interest rates and in some cases they can even go up to 20 per cent. This significantly increases the cost of a used car loan.
Another drawback associated with used car loans is the amount of loan sanctioned. In case of a new car one can easily get a loan up to 90 per cent of the car value and under certain conditions banks do not hesitate to fund even up to 100 per cent of the car cost. This amount is drastically reduced when it comes to giving a used car loan. A used car loan covers only up to 80 per cent-85 per cent of the cost of the car. In some cases it drops to 70 per cent of the cost of the car.
In case of new cars some banks like the State Bank of India offer loans at on road prices of the car, thus covering the entire burden of the car loan. This is never the case with used car loans. The insurance costs, road tax etc. will always be borne by the owner in case of a used car loan. This significantly increases the upfront amount to be paid.
The repayment tenures of used car loans are considerably shorter than those of new cars. While the new car loans can be repaid in 84 installments, used car loans might be available for 36 months at most. Depending on the loan amount and interest this can considerably increase the EMI.
There are pros and cons of buying a new car and an old car. Similarly the used and new car loans have their own benefits and drawbacks. Before deciding on a particular car loan, it is essential that one should pay special attention to interest rates, down payments, loan amount, processing fees, loan tenures and other important terms associated with the car loans.
Image: A 2015 Alfa Romeo 4C (bottom) is displayed along with a 1967 Alfa Romeo 33 Stradale (top) during the first press preview day of the North American International Auto Show in Detroit.