Hidden Costs You Must Know Before Buying a Pre-Owned Car

The demand for pre-owned or used cars in India has seen a significant uptick in recent years. They’re budget-friendly alternatives to new cars, giving potential buyers the opportunity to own a vehicle at a fraction of the cost of a factory-fresh vehicle. However, beyond the attractive price tags and tempting deals, purchasing a pre-owned vehicle comes with a few hidden costs that must be taken into consideration. This guide lists out everything you should be aware of before paying for a used vehicle.

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Inspection and Certification Costs

Before finalising the purchase of a used car, a thorough pre-delivery inspection is important to understand its condition. Professional inspections, conducted by mechanics or authorised service centres, however, come at a cost. Additionally, certified pre-owned cars, which are sold through authorised dealerships, often carry a certification fee.

• Inspection fees: There is no fixed amount associated with an inspection fee. They typically range from ₹1,000 to ₹3,000 for a basic inspection and can go higher for advanced diagnostics.as an example, CARS24’s inspection fees for either, a new or a used car, are ₹999.
   
• Certification costs: Certified pre-owned cars from dealerships may charge a premium of around  ₹10,000 to ₹30,000.

While these costs ensure peace of mind and reduce the risk of buying a car with a significant defect or malfunction, they can inflate the overall expense of purchasing a used car.

Repairs and Maintenance

Even with a detailed inspection, pre-owned cars are more likely to require repairs and maintenance compared to new vehicles. Older cars may have worn-out parts that need immediate replacement.
 

• Common repairs: Issues like brake pad replacement, clutch overhauls, and suspension repairs can quickly escalate costs.
   
• Maintenance costs: Routine services for an older car may be more frequent, and sourcing spare parts for discontinued models can be both time-consuming and expensive.
   

For example, the service costs for a mid-size sedan like a Hyundai Verna are approximately ₹4,000 annually, but if repairs are needed, this figure can escalate significantly.

Extended Warranty or Service Contracts

While some dealers offer extended warranties on pre-owned cars, these come with an additional cost. Buyers often opt for these contracts to cover unexpected repair expenses, especially for cars nearing the end of their original warranty.
 

• Warranty costs: Extended warranties can range from ₹5,000 to ₹25,000 depending on the car’s make, model, and age.
   
• Service contracts: Comprehensive service packages offered by third-party providers may cost upwards of ₹10,000 annually.

While these add-ons provide financial protection, they increase the upfront and recurring costs of ownership.

Insurance Premium Differences

The cost of insuring a pre-owned car differs significantly from a new vehicle. While the Insured Declared Value (IDV) is lower for older cars, the higher risk of breakdowns and accidents can lead to increased premiums.
 

• Third-party insurance: This is mandatory in India and relatively affordable.
   
• Comprehensive Insurance: A necessity for pre-owned cars to cover damages and repairs, but it can be costlier due to the car’s age and condition.

For example, insuring a 5-year-old car could cost ₹8,000 to ₹15,000 annually, depending on its model and condition. This figure is an approximation; for a precise amount, it’s best to check directly with an authorised insurance provider.

Loan Interest Rates for Used Cars

Financing a pre-owned car often involves higher interest rates compared to loans for new cars. This is because banks consider used cars as riskier assets, leading to increased borrowing costs.
 

• Interest rates: Typically range from 10% to 15% for used car loans, compared to 8% to 12% for new car loans.
   
• Down payment: Financial institutions may require a higher down payment for used cars.
   

For instance, the difference in interest rates on a ₹5 lakh loan could result in paying ₹50,000 to ₹1,00,000 more over a 5-year tenure.

Depreciation and Resale Value

Pre-owned cars often come with lower resale values, and depreciation is a key factor to consider. While the initial depreciation is borne by the first owner, older cars continue to lose value rapidly.
 

• Higher depreciation: Cars older than five years may depreciate at an accelerated rate, losing 15%-20% of their value annually.
   
• Limited resale market: Certain models or brands which are not as popular may struggle to find buyers, further reducing their resale value.

For instance, a second-hand luxury car might lose ₹1 lakh to ₹2 lakh in value annually, making it a costly investment in the long run.

Registration and RTO Costs

When purchasing a pre-owned car, buyers must factor in the cost of transferring ownership and re-registration. These charges vary based on the car’s age, location, and original registration state.
 

• Ownership transfer fees: Typically ₹1,000 to ₹5,000, depending on the RTO.
   
• Road tax: Buyers may need to pay additional road tax if the car is being registered in a different state.
   
• No Objection Certificate (NOC): If the car is from another state, obtaining an NOC will add to the expense.

These costs, though seemingly minor, can add up to ₹10,000 or more, especially for interstate transactions. A good way to rid yourself of the hassle is to buy a used car through CARS24, where aspects like ownership transfer fees are taken care of for you.

Fuel Efficiency Issues

Older cars may not deliver the same fuel efficiency as they did when new. Wear and tear on the engine and outdated technology can lead to higher fuel consumption.
 

• Mileage drop: A car advertised with a mileage of 20 kmpl might offer only 15-16 kmpl after a few years of usage.
   
• Fuel costs: With rising fuel prices in India, even a small difference in mileage can lead to significant expenses.

For instance, a drop of 5 kmpl in mileage for a car driven 1,000 km per month can translate to an additional ₹2,000 to ₹3,000 monthly in fuel costs.

Missing Features or Upgrades

Pre-owned cars often lack modern features found in newer models, such as advanced safety systems, infotainment options, or fuel-efficient engines. Buyers may need to spend on upgrades to match their requirements.
 

• Feature additions: Installing a touchscreen infotainment system or reversing camera can cost ₹10,000 to ₹30,000.
   
• Safety upgrades: Adding airbags or ABS to an older vehicle is not possible, however, retrofitting aftermarket features like tyre pressure monitors, reversing camera and parking sensors can increase costs.
   

While upgrading the car can enhance its usability, it further increases the ownership expense.

Conclusion

While pre-owned cars in India offer an affordable entry point to vehicle ownership, buyers need to be aware of the hidden costs associated with them. Inspection and certification, repairs, insurance, loans, and depreciation are some of the expenses that can inflate the actual cost of ownership. By thoroughly evaluating these factors and planning for unforeseen expenses, buyers can make informed decisions and avoid unpleasant financial surprises. Remember, a seemingly good deal may turn into a costly experience if these hidden costs are overlooked.