Thinking of buying a used car?

Vinay Bansal works for a private firm. For the last 18 months, he has been working from home, due to the coronavirus pandemic. With offices opening, he is faced with the prospect of a longish commute to his workplace.

Before the pandemic, Vinay used to travel by public transport. But now he wants to avoid travelling on the crowded train or bus and hence has decided to buy a car. Since he has a limited budget, he has opted to buy a used car. Let us see what factors Vinay should consider while buying a used car.  

(1) Purpose
The first thing to factor in when looking to buy a car – whether used or new – is the primary purpose for which it will be used. In Vinay’s case, this is likely to be commuting to the office – about 20 km each way, with an occasional weekend drive with his family. 

Given these facts, a compact car would be ideal for him. It would give a good mileage – an important factor considering the fuel prices. Also, it will be easier to manoeuvre while driving in the city.

(2) Age of the vehicle
Used car prices tend to fall sharply in the first three years and then plateau. This is the sweet spot Vinay should aim for. He should look for a vehicle that is not too old and is likely to give good service for a few years. 

(3) Whom to buy it from
Used car dealers come in all shapes and sizes – from the small-time roadside mechanic trying to earn an additional buck to large, organised chains. Unless you are buying the car from someone you know well, it is preferable to buy it from an organised dealership. Such dealerships tend to certify the vehicles they sell and conduct due diligence on the paperwork. This would save Vinay a lot of hassle.

(4) Condition of the vehicle
Irrespective of whom you buy the car from, it is important to thoroughly check the car’s condition. Ideally, this should be done by an expert. If you don’t have an expert among your friends or family, you could take the help of a mechanic, who will have the technical knowledge. This is what broadly you should check for:

• An average car is likely to do about 12,000-15,000 km per year. Considering this, Vinay should ideally target to buy a vehicle that hasn’t done more than 50,000 km.
• Dents, rust, and state of the paintwork can indicate whether the car has been involved in an accident. Also, check the underbody for rust and wear and tear.
• Another indication would be the insurance records. If the previous owner has availed of the No Claim Bonus, the likelihood is that the vehicle has not been involved in an accident.
• Changing tyres can be expensive so it’s important to check their condition.
• Check the condition of the interiors.
• Take the vehicle for a test drive and check for handling, state of brakes, suspensions, lighting, and comfort features like the air conditioning. Also, check if the on-board entertainment system works properly.

Financing a used car

When it comes to availing of a loan to buy a used car, a slightly different set of factors come into play than when buying a new car. Here is what Vinay should look out for:

• Interest rate and Loan-To-Value (LTV) ratio: Because used cars are a slightly riskier proposition than new ones, lenders tend to charge a higher interest rate. Similarly, while lenders may extend up to 100% of the on-road cost of a new vehicle, the LTV for a used car is likely to be around 75-85%, in the case of most lenders. This means that Vinay should be prepared to pay the remaining cost of the car as a down payment.
• Valuation: While there is never a dispute on the cost of a new car, for a used one, lenders may take a different view than the price that the seller is quoting. The loan amount will depend on this valuation by the lender. Typically, if the used car is bought from an organised dealer, the lenders are unlikely to dispute the valuation too much. Your bank may have a tie-up with an organised dealer for used cars. Check for the same. 
• Loan tenure: While banks may offer loans for up to eight years for new cars, for used ones the loan tenure is generally capped at five years.
• Age of the vehicle: The bank may also have a clause for the vehicle's age. For instance, in the case of Axis Bank, the bank offers loans for cars that are not more than 10 years old at the end of loan tenure. 

Vinay could consider taking a loan from Axis Bank for his Used Car purchase. The bank funds up to 95% of the car valuation amount for selective models. Its interest rates are competitive and Axis Bank’s pan-India network of dealers will give Vinay all the support in completing the process of transfer of ownership.

Check out Axis Bank’s Used Car loans and calculate EMI with our car loan EMI calculator.

Disclaimer: The Source, a Mumbai-based content creation and curation firm, have authored this article. Axis Bank does not influence the views of the author in any way. Axis Bank and The Source shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.