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To buy a second hand car or a brand new car !!!!

By   /   December 28, 2012  /   No Comments

new used

 

In the previous article, SHOULD YOU BUY A CAR, we talked about should one take a loan for buying a car. In this article, we will focus upon whether to buy a brand new car or a second hand car.

If you are among those who take out the car from garage once or twice in a week, TRUST me, you should go for a second hand car.

As per IRDA, depreciation rate for car is 15% per annum. Say you have Rs.7 lac in hand and you are planning to buy a new car. On the other hand you have an option to buy a second hand car for Rs. 4 lac.

Depreciated value of car @ 15% per annum after 5 yr’s will be:

YEAR NEW CAR SECOND HAND CAR
0 7,00,000 4,00,000
1 5,95,000 3,40,000
2 5,05,750 2,89,000
3 4,29,890 2,45,650
4 3,65,404 2,08,800
5 3,10,595 1,77,482

Depreciated value of new car at the end of 5 yr’s comes out to be Rs. 3,10,595, whereas depreciated value second hand car after 5 yr’s comes out to be Rs. 1,77,482.

If Rs. 3 lac saved initially by not buying a new car ( 7-4 = 3 ) is invested in five year National Saving Certificate, amount at the end of 5 yr’s would be Rs. 4,57,050.

So, asset in hand after 5 yr’s would be:

NEW CAR Rs. 3,10,595Depreciated value of new car
OLD CAR Rs. 6,34,532( 1,77,482 + 4,57,050 )Depreciated value of second hand car + Amt invested in NSC.

Now an instant question comes to your mind that maintenance cost of used car is high as compared to that of new car. You are right, but at the end it’s a zero-sum game. Let’s see how :

As the cost of new car is high , it’s insurance cost is high & maintenance cost is low.Whereas in case of second hand car, it’s cost is less, so it’s insurance cost is less & it’s maintenance cost is high.

Considering insurance cost & maintenance cost of used car as well as new car, the amount you have to spend per annum comes out to be same.

So on an average if your running per month is less than 1000 km, it’s better to buy a certified used car. Currently many car sellers have a separate showroom for used cars sale and purchase. On top of that, they also provide you with free services and various other features similar to the new one.

Drive safe 

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About the author

Hi My name is Hari Om Tripathi. I am an engineer by chance & a Personal Financial Planner by choice. Currently residing in Kanpur & writing full time for Financial Kundali. In case you have any query about Personal Financial Planning such a buying a MF or ULIP, going for a life insurance plan or a term plan, to surrender your policy or not or any other questions related to your Personal Financial Planning, write to me at financialkundali@gmail.com

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