Love that snazzy SUV? Buy a pre-owned one if a new vehicle is out of reach

Just make sure it's in good shape, the papers are in order and the price you're paying doesn't pinch in the long run

An increasing number of buyers in India are opting for pre-owned vehicles. Last year, about 4.1 million such cars were sold in the country compared to 2.5 million new ones. In other words, around 1.6 pre-owned vehicles were sold for each new one.

Cost-effectiveness, aspirations driving demand

One factor driving demand is the pandemic, which has made people more reluctant to use public transportation and shared riding options. “An increasing number of individuals now favour individual mobility,” says Gajendra Jangid, co-founder and chief marketing officer, CARS24.

Adds Niraj Singh, founder and chief executive officer (CEO), Spinny: “People have realised the importance of owning a personal source of mobility to attend to any on-demand need.” This could include a medical emergency.

Cost effectiveness is, of course, a prime motivator. “You could get a one-year-old vehicle 12-15 per cent cheaper than a new one; a two-year-old vehicle 30-35 per cent cheaper; and a three-year-old vehicle 40-45 per cent cheaper,” says Sandeep Aggarwal, founder and CEO, Droom.

The demand for pre-owned vehicles is also being fuelled by first-time owners.  Unlike their parents’ generation, today’s youths want to own a four-wheeler at the earliest. Opting for a pre-owned vehicle also allows them to buy a more aspirational model than they would be able to afford if they bought a new vehicle. Some, for instance, would rather buy a four-five-year-old BMW 3 series than a new Honda City.  

A couple of factors on the supply side have also facilitated the pre-owned vehicle market’s growth. “Customised financing options for pre-owned vehicles have now become available,” says Jangid. Moreover, customers’ reluctance to own a car for more than three-four years (down from five-six years) means more pre-owned vehicles come into the market. Many buyers, too, prefer pre-owned vehicles which they can switch faster.

According to Singh, the ongoing shortage of semiconductor chips globally, which has prolonged the waiting period for new vehicles, has also led to customers turning towards pre-owned ones.

Select the right model

Begin your hunt for a pre-owned vehicle by first zeroing in on the right model. “Think about the purpose for which you are buying the vehicle, how much it is likely to be driven in a year, your budget, and so on,” says Aggarwal.

To elaborate, you need to answer questions like whether you want a hatchback, sedan, or SUV (sport utility vehicle); a two-, four-, or six- seater; a family car or one that will be driven for the regular commute to the office; whether it will be the first, second or third car in the family; whether it will be driven by you, spouse, kids, or parents; a diesel or petrol version; manual or automatic gear; and so on.

Avoid the lemons

The traditional way of ensuring that you get a good-quality pre-owned vehicle is to take a trusted mechanic along. He would examine the car on your behalf and give the green signal.

The organised players take the onus of ensuring quality upon themselves. “All cars sold on our platform are refurbished in one of the seven Mega cap Refurbishment Labs in the country, where they undergo a 140-plus point check,’’ says Jangid. He adds that CARS24 also offers a seven-day return policy and a one-year warranty to customers.

Get the pricing right

To ensure that you are not cheated on price, you can again take the traditional route of relying on a mechanic. But today more sophisticated online tools have also become available. Droom, for instance, offers a tool called Orange Book Value. “You type in the make, model, year, kilometres driven, location, etc and it will tell you the fair market value of the vehicle,” says Aggarwal. Such tools rely on past data to provide you with an estimate.

Run a few more checks. “Don’t buy a pre-owned vehicle without checking its history for things like accidents, repairs, kilometres driven, and so on,” says Singh. He adds that buyers also need to do a thorough document check.

Points to remember when taking a used vehicle loan

The first point to remember when taking this loan is not to opt for a vehicle that already has an outstanding loan against it. “If the vehicle is hypothecated to a bank, get the owner to first close the loan and get the hypothecation removed from the registration certificate (RC). If you go for a hypothecated vehicle, things could get complicated for you due to the involvement of the regional transport office (RTO),” says Abhinav Kaul, vice president-strategic partnerships, BankBazaar.com.

Be prepared to pay a higher interest rate for a loan on a used vehicle. Lenders view customers who opt for a used vehicle as being riskier. The other factor due to which lenders charge a higher rate is that it is hard to assess the history of a used vehicle. “A new vehicle comes with the manufacturer’s guarantee on the vehicle and its parts. This is not the case with a used vehicle. There is less clarity on the state of the vehicle, whether it was involved in an accident, the condition of the engine and other parts,” says Kaul.

Instead of going for a used vehicle loan, buyers may consider other options. “Taking a personal loan or a top-up home loan, if you have an existing home loan, could work out to be cheaper,” says Gaurav Aggarwal, senior director, Paisabazaar.com.

The processing of pre-owned vehicle loan can take time as lenders consider various factors like model, age and condition of the used car. “Buyers who purchase a pre-owned vehicle from an unorganised player are likely to find it more difficult to avail of a loan,” says Aggarwal of Paisabazaar.com.

The tenure for which you are likely to get a loan on a used vehicle could also be lower. “The lifespan of a vehicle is considered to be 15 years. Lenders are willing to give up to an eight-year loan on a new vehicle. Most banks will not fund a vehicle older than eight or nine years. If it is seven years old, you may not get a loan for more than three-five years.

If a vehicle is being resold the first or second time, you may be able to get a loan on it, but not beyond that,” says Kaul.

The percentage of price of the vehicle that the lender is willing to fund is also likely to be lower in the case of a pre-owned vehicle. “Lenders usually finance up to 70-90 per cent of a used car’s valuation. Moreover, the valuation arrived at by the lender could be lower than its purchase price,” says Aggarwal of Paisabazaar.com. Opting for a personal loan can work out to be better as one can borrow an amount that finances the entire purchase.

Used car loan rates range from 6.85 to 13.75%

Lender	Annual interest rate (%)	Maximum loan tenure (yrs)	Processing Fee
State Bank of India	9.25-12.75	5	1.25% (Min. Rs 3,750; Max. Rs 10,000)
HDFC Bank	13.75-16.00	7	0.50% (Min. Rs 3,500; Max. Rs 8,000)
Axis Bank	13.25-15.00	5	Rs 6,000 or 1%, whichever is higher
Bank of Baroda	9.25-12.05	5	0.50% (Min. Rs 2,500; Max. Rs 10,000)
ICICI Bank	12.00-14.50	7	2% or Rs 15,000, whichever is lower
Bank of India	6.85-8.55	3	No processing charges up to Dec. 31, 2021
Punjab National Bank	7.75-9.20	5	Full waiver of upfront/processing fees (from Jan. 1, 2022 to Mar. 31, 2022)
Indian Overseas Bank	8.55-9.55	7	Up to 0.6% (Max Rs 10,000)

Rates as on March 24, 2022; Source: Paisabazaar.com