Buying a new car is a significant step for all of us, whether it is the first box on wheels that we are buying or the third premium sedan which we are adding to the garage.
But many of us unwittingly fall prey to temptations laid before us by manufacturers or dealers, miss reading the fine print, or sometimes commit the most common mistakes buyers make while buying a new car. Here are some tips to avoid these mistakes and save some much-needed cash. With the current downturn in the market, there couldn’t have been a better time to strike a bargain while heading out to get your dream car.
New Vs Used
First off, here is the most under-discussed subject when buying a car – should you buy new or used?
The lure of a new car is very powerful and even more so if you are buying the first car. So, most potential buyers brush aside the thought of buying a used car, until reality hits them hard. The hard reality we are talking about here is depreciation.
More and more buyers who live in the major metros of the country are buying cars for their daily commute to work and nothing much else. The speech bubble with the cartoon character dreaming about a driving holiday to the nearby hill station is often just that – a dream – even in real life.
We don’t want to sound fatalistic, but if one looks at usage trends amongst many new car buyers, it is often less than 1,000 kilometers a month. And annual depreciation (based on market residual or resale value, not book value), could vary from Rs 50,000 to Rs 3 lakh, depending on if it is a small car or an entry-level luxury car.
Depreciation or market value erosion is a silent drain on the value of your car and it is a notional cost which you will realize that you have to account for only at the time of selling the car. Based on the depreciation that we have mentioned above, the cost of this element alone for your car (based on annual usage of 12,000 km) could range from about Rs 5 to Rs 25 per kilometer!
To keep the cost of depreciation down and even possibly affording a better car, buyers who are likely to use their cars sparingly should consider a used car. There are a number of used car dealers nowadays, many of them are reliable both manufacturer owned and independent. And many of these dealers use a detailed engineering checklist to make sure you won’t land a lemon. The usual stumbling block is often financing the purchase, but many banks are now willing to finance used cars too.
Negotiating the price
Talking about financing, after deciding to go in for a new car, the next big call to make for the average car buyer is whether to seek financing for a part of the car’s price and who to take the loan from.
First, even if you are going to take a loan, don’t mention it to the dealer immediately. Sales-people at the dealerships are trained to play around with discounts and often present price-cuts in the form of lower interest rates if you are taking out a loan. So talk to them like you are doing a cash-down deal and negotiate the discounted price or the freebies that can be thrown in before revealing your plan to take out a loan.
Car manufacturers or dealers may have an exclusive financing arrangement with specific banks or financial institutions, enabling them to offer competitive rates. But they would mostly have been discounts on the cars themselves otherwise. Very often you will be able to take a loan from a different bank or financial institution at a slightly higher rate, but which will enable you to strike a harder bargain with the dealer.
One other secret to a lower interest rate on your car loan is to strike the deal towards the end of the month. Agents for bankers and financiers are usually under pressure to meet month-end targets and will be more willing to give up on some of their margins just to be able to close your deal.
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