New Car vs Used Car: Which One to Buy?

The new car vs. used car argument is not new at all. While some believe that it makes sense to purchase an old car because it is more affordable, others claim that there is no alternative to a brand-new car. The truth is that the latter made more sense until some years ago when people used to drive a car for almost a decade before considering selling it. However, things have changed drastically since then. Today, most millennials switch to new jobs and cities two-three times in ten years. So, the car ownership lifecycle has dropped to five years now.

If you are buying a car, there are multiple factors to consider before deciding which option is suitable. This article details the advantages and disadvantages of both old and new cars to help you make an informed decision.

Advantages of buying a used car

There are multiple benefits to buying a used car. The list given below can help you get a clear idea.

1. Cost-effective option

It is obvious that new cars cost much more than the used ones. But what you might not know is that new cars depreciate relatively faster than the old ones. The price of a new car drops significantly in the first few years. So, if you are a little patient, you can get a used model of your dream car for an affordable price. And this is true for luxury cars, too!

2. Affordable EMIs

Availing of a car loan will be more affordable in the case of used cars. Many lenders now provide attractive financing options on used car loans, offering you competitive equated monthly installment (EMI) deals. So, repaying the loan will be less stressful if you opt for a second-hand vehicle.

3. Slower depreciation

If you have plans to sell your car in the future, a used one can get you a reasonable price. The cost of a new car falls by about 30% in the first year and 50% in five years. The depreciation rate of an old car is comparatively slower, giving you a better resale value.

4. No commission

The used car market has changed drastically over the last few years. You can buy used cars online for a fair price and eliminate the need to pay any commission to a dealer. Most digital portals are reliable and offer a wide range of choices, ensuring that you find the car that meets your expectations. They also help you with the registration and financing process along with other required documentation.

5. Peace of mind

Driving a new car is a stressful experience as you are always worried about scratching or denting the vehicle. In this context, you can stay more relaxed and enjoy driving a used car.

Disadvantages of buying a used car

Buying an old vehicle comes with some drawbacks, too. It entails the following two major disadvantages.

1. Lack of reliability

It is not always possible to determine how the previous owner used the car. When you purchase a second-hand vehicle, the maintenance costs may be high, and you may require more frequent visits to a repair shop. The lack of reliability is one aspect that might be difficult to ignore.

2. Compromises

When purchasing a used model, you need to be extra careful about a car’s mileage and history, which are the two major deciding factors. So, you may have to compromise on the features and color of your choice as these become secondary aspects.

Advantages only new cars give you

If your mind was set on buying a new car, do not be disheartened yet. New cars come with many advantages, too. Three of them are as follows:

1. Yearend sales

Car dealers often offer great discounts on new cars during the end of a year or clearance sale. You can shop around to find the best deals and save a lot of money. It will also benefit you when selling the vehicle later, as the devaluation occurs on the market price of the car and not on the amount you paid.

The dealers also offer free accessories and add-ons to sweeten the deal. You can get a music system, service guarantee, and much more complimentary with the new car.

2. High mileage

New cars generally ensure better mileage compared to used ones. So, that will help you save a lot of bucks on fuel expenses.

3. Advanced technology

If you are looking for a technologically advanced and feature-rich model, you can find the latest specs only in a new car. A used vehicle will always be behind in terms of technology, even if it is only a couple of years old.

How to decide between an old and a new car

If you are still confused between an old car vs. a new car, it is time to compare them in terms of money. That always helps, right?

Suppose the car you like is priced at ₹10 lakhs today. You have the option to buy it at the current price or get a five-year-old model of the same vehicle. The purchase price of it will be ₹5 lakhs due to the 50% depreciation.

Now let us compare both scenarios in terms of associated costs.

1. Loan EMIs

If you opt for car financing, you need to pay ₹1 lakh as a down-payment for the car and get the remaining amount as a loan. For the new car, you will get ₹9 lakhs of financing at 10% interest. The EMI will amount to ₹19,122 a month. On the other hand, you can get a loan of ₹4 lakhs for the used car, but it will have a higher interest rate of around 14.5%. So, the monthly EMI for it will be about ₹9,411. As you can see, the financing for a used car is quite affordable.

2. Fuel costs

A new car offers better mileage, which can be around 4 KMPL more than the used one. So, if you plan to drive the vehicle for 10,000 KM a year, the total cost of fuel will be relatively higher for the second-hand car.

3. Maintenance

When you buy a new car online or from a dealer, it comes with a warranty period, which you may not get with a used car. So, maintenance costs for a new vehicle will be covered by a warranty for the first few years. But in the case of an old car, you need to pay the servicing fees out of pocket. So, purchasing a new car is feasible in this aspect.

4. Resale

If you decide to sell your new car after five years, you will get around ₹5 lakhs due to the 50% depreciation. But devaluation slows down after three years, making used cars lose value at a much slower pace. Based on the current market condition, you can sell a used car after five years for around ₹3.5 lakhs. So, you will be losing ₹5 lakhs on the new vehicle and only ₹1.5 lakhs on the old one.

5. Insurance

Insurance for a new car costs about ₹10,000 a year, but it should not be more than ₹7,500 annually for a used car. Over five years, you can spend ₹12,500 less in insurance payment for the old car.

As you can see, when you buy used cars online, your total expenses over five years will be significantly lower than a new one. So, it makes financial sense to invest in a second-hand car. But, if money is not an issue for you, perhaps you can opt for a brand-new car. After all, it does come with some shine!

Example Scenario:

Let’s compare a new Car with a 3-year-old used car.

1. Initial Cost:

• New Car:
  • Ex-showroom price (2024): ₹7,00,000
  • On-road price (including registration, insurance, and taxes): ₹8,00,000
• Used Car:
  • Market price (2021 model, good condition): ₹4,50,000
  • On-road price (including registration and insurance): ₹4,80,000

2. Depreciation:

• New Car:
  • Depreciates around 15-20% per year. After 3 years, the car might be worth around ₹4,50,000 to ₹5,00,000.
• Used Car:
  • Depreciation is slower for used cars. After 3 more years (a total of 6 years), it might be worth around ₹3,00,000.

3. Loan and Interest (if applicable):

• New Car:
  • Loan amount: ₹6,00,000 (assuming a down payment of ₹2,00,000)
  • Interest rate: 8% for 5 years
  • Total interest paid: Approximately ₹1,30,000
  • Total cost: ₹8,00,000 (initial) + ₹1,30,000 (interest) = ₹9,30,000
• Used Car:
  • Loan amount: ₹3,80,000 (assuming a down payment of ₹1,00,000)
  • Interest rate: 10% for 3 years
  • Total interest paid: Approximately ₹62,000
  • Total cost: ₹4,80,000 (initial) + ₹62,000 (interest) = ₹5,42,000

4. Maintenance and Running Costs:

• New Car:
  • Lower maintenance costs for the first few years due to warranty.
  • Average annual maintenance: ₹10,000
  • Fuel efficiency: 20 km/l
• Used Car:
  • Higher maintenance costs due to age.
  • Average annual maintenance: ₹20,000
  • Fuel efficiency: 18 km/l (slightly reduced due to age)

5. Resale Value after 3 years:

• New Car: ₹4,50,000 (approx)
• Used Car: ₹3,00,000 (approx)

Total 3-Year Cost Comparison:

• New Car:
  • Initial cost: ₹8,00,000
  • Interest: ₹1,30,000
  • Maintenance (3 years): ₹30,000
  • Fuel cost (assuming 15,000 km/year, fuel price ₹100/litre):
    • Total km: 45,000 km
    • Fuel consumption: 2,250 litres
    • Total fuel cost: ₹2,25,000
  • Resale value after 3 years: ₹4,50,000
  • Net cost over 3 years: ₹8,00,000 + ₹1,30,000 + ₹30,000 + ₹2,25,000 – ₹4,50,000 = ₹7,35,000
• Used Car:
  • Initial cost: ₹4,80,000
  • Interest: ₹62,000
  • Maintenance (3 years): ₹60,000
  • Fuel cost (assuming 15,000 km/year, fuel price ₹100/litre):
    • Total km: 45,000 km
    • Fuel consumption: 2,500 litres
    • Total fuel cost: ₹2,50,000
  • Resale value after 3 years: ₹3,00,000
  • Net cost over 3 years: ₹4,80,000 + ₹62,000 + ₹60,000 + ₹2,50,000 – ₹3,00,000 = ₹4,52,000

Conclusion:

• Used Car: ₹4,52,000
• New Car: ₹7,35,000

In this example, buying a used car saves around ₹2,83,000 over three years. However, a new car might offer better reliability, warranty, and the latest features. The best choice depends on your priorities: cost savings with a used car or peace of mind with a new car.