Used Car Buyers Guide

Used-Car-Buyers-Guide

Buying a used car in India is unique and is unlike developed markets, where you have lemon laws, evolved vehicle history reports, used vehicle pricing tools, etc.  In India transfer of registration, taxation, etc., add further to the complexity of buying a used car. In India, every state has its own tax structure, inter-state registration transfer is a very costly affair making it unfeasible to buy a used car inter-state.

However, more and more buyers are looking to buy a used car as it makes great economic sense and saves a ton of cash.

Follow, this step-by-step guide while buying a used car.

Step-1: Know your needs

Take a piece of paper and write down why you want to buy this car and get a concurrence of your family. This simple checklist should help you crystallize your needs.

My Criteria to buy a used car Importance [ Low | Med | High ]
Price / Budget
Fuel economy
Performance
Safety & security
Styling / Body Style
Life Style
Brand / Model

Step-2: Plan your purchase

Based on the above decision criteria you need to decide on the upper limit of the budget / EMI’s you can afford to pay and arrive towards a shortlist of cars that meet your needs. It is OK to deviate a little bit over the budget if you are getting a great piece of metal.

Next give yourself a time frame to search, identify and purchase your next used car, one month to 45 days is a good time frame to buy yourself a good car.

Step-3: Research about the cars and market prices

Today, you get lots of information and expert reviews online about cars, including their features, specifications, fuel economy, etc. Some of the leading websites are carwale, cardekho, gaadi, cartrade, etc., which give you detailed information about the car and pricing. You can also research pricing by looking at the actual cars put for sale on olx and quickr.

Step-4: Find the used cars for sale in your local market

Start your search online, the websites mentioned above provide many vehicles that are on sale from individuals and dealers. Also, look for used car dealers nearby on Google, and check out the cars available with them. Make a shortlist of the cars that you would like to personally see and test drive.

NOTE: ANOTHER KEY CRITERIA FOR SELECTING THE VEHICLE IS THE REGISTRATION OF THE CAR SHOULD BE IN THE SAME STATE WHERE YOU ARE RESIDING AND HAVE A PROOF OF RESIDENCE. IN CASE YOU ARE RESIDING IN A RENTED HOUSE, YOU NEED TO HAVE A LEASE DEED, A LETTER FROM YOUR COMPANY ADMIN CERTIFYING THAT YOU ARE RESIDING THERE.

Step-5: Quality Check

Once you have seen the vehicles and test drove them (ensure you do a thorough test drive for at least 15 min), you would have a final shortlist of cars that you would like to buy.

Now comes the most important part, “to check whether the used car that you have liked is of good quality or a lemon”. Many used cars that look good from outside are camouflaged and can potentially hide major accidents, odometer tampering, major mechanical repairs and flood damage.

The following checklist provides a quick guide how to check for quality based on where and from whom you are purchasing the car.

Seller Type

What to Check

Individual Seller & used car dealer Ask for service records, owner’s manual and where the car has been serviced
  • Check if any major repair work has been performed – you can find this by simply looking at the bill amount
  • Also, check the odometer reading of last service and the reading in the car
  • If there is a large time gap from the last service done, there could be something fishy

Now look at the insurance policy and check for any claims

  • If there are any claims made, ask for body repair bills
  • If the bill amount is too big, get out of there
  • If there are no claims and the car has adequate no claim bonus, the car should be a good one

Get it inspected

  •  Take the vehicle to the authorized workshop and get an estimate of the work to be done and ask them of any major repairs performed in the car
  •  You can also take a reliable mechanic to check for any other hidden flaws (mainly accident)

Certified Used Car Dealer: Certified dealers typically perform all these checks as they are looking to build loyal customer base and reputation in the market. However, not all cars that are with these dealers are certified.You must check with the dealer if the car is certified and ask for warranty. If the car is not certified, then you need to do all the checks mentioned above.

Step-6: Finalize the deal

Since there are no standard prices of used cars in the market, the prices are always marked-up and are negotiable. A good beginning for your negotiation should be dealer’s asking price for the car. Dealers tend to mark-up the price by 15-20% for negotiation. Individuals typically tend to follow dealer prices and their asking price will be in similar range.

Note: You should never make the first offer. Let the seller make the offer first, which should be the starting point of negotiation.

How much should you pay: This depends upon the condition of the car, where you are buying it from and what value added services you are getting.  The following table shows how much you can negotiate from the asking price:

Seller Condition of Car Negotiation
Individual Most of the cars sold by individuals are sold on As-Is basis without any work performed on the car.Unlike dealers, individuals don’t have any overheads like manpower, inventory carrying costs, etc. Firstly, check if the asking price is in line with the market, then start negotiation.Your starting point of negotiation should be 30-35% lesser from the asking price. The negotiation should end somewhere around 20-25% lesser price from the asking price.
Used Car Dealers Used car dealers invest in the car, perform some minor mechanical repairs and cosmetic upgrades. However, they generally are not registered under sales tax (VAT). There is a room for 15-20% negotiation, as dealers want to recover their overheads and earn some margin.
Certified Dealer Certified dealers do a thorough job on refurbishing the car both mechanical parts and cosmetic, they also offer warranty and after sales services. Further, most of these dealers are registered under sales tax pay VAT. Certified Cars typically go at a premium of 5-8% compared to a normal used car sold by the dealer. This premium is mainly towards the refurbishment, warranties, after sales services and taxation. Note that buying used car is not the end of journey but a beginning, and you will need after sales service if something goes wrong. There is still a room to negotiate up to 10-15% in case of certified cars.

 Other Costs: There are certain additional costs you need to incur which you need to budget while buying a used car.

Servicing and Repair Cost: If you buy the car from individual or a non-certified used car, you need to take the car for a service and get some aesthetic upgradation done.

Insurance Cost: If the car has a valid insurance, you need to get the insurance transferred in to your name, which will cost a nominal amount of Rs.500 to Rs.1000. In case insurance is expired or has a 3rd party you need to get a comprehensive insurance done, which will be 3-4% of the vehicle price. It is illegal to drive a car on the Indian roads without a valid insurance.

Registration Transfer: Assuming you have a valid address proof, the registration transfer charges vary from Rs.1000 to Rs.4000.

Commissions: Some dealers operate on commission basis which range from 1-2% of the final transaction price.

Step-7: Used Car Finance

If you don’t have enough cash or want to use the cash for some other purpose like an investment or any other expense, you can avail a used car loan. Leading banks like HDFC, ICICI, Kotak and NBFCs like TVS Credit, Tata Finance, Mahindra Finance offer used car loans. Public sector banks do offer loan on used cars if you have an account with them.

The interest rates on used cars is higher compared to new cars and vary in the range of 15-20% based on a) your credit profile b) the car you are purchasing like: the model, age of the car, whether it is certified, etc.

Some corporates do offer loan to employees for a used car under the company car policy based on your eligibility.

First, you check with your company HR, this would be the best option as you can avail tax benefits. If this option does not work out, check with your bank before-hand if they are willing to offer a loan on used car, the rate of interest, up to what value of the car they are willing to fund and the tenure (no of months).

Alternately, most of the used car dealers are associated with banks and financial institutions offering used car loans, you can avail a loan through the dealer from where you are buying the used car. In case you are buying a certified car, banks generally offer lower rate of interest as the risk associated with the condition of car is mitigated.

Step-8: Paperwork

Once you have finalized the purchase, the last step and the most important is the paperwork or documentation. It involves the following:

Transaction Documentation: Booking order form, Delivery Note, Invoice, Payment Receipts, etc.

Registration Transfer: You will become the legal owner of the car on transfer of Registration Certificate in your name. The documents involved are Form-28, Form-29 and Form-30 and Sale Affidavit.

Form 26 would be needed if the original RC is lost and a duplicate RC is to be made.

In case banker’s hypothecation is to be removed and fresh hypothecation to be added you need Form-35, NOC and Form-34.

There are additional requirements for addition and removal of CNG/LPG kits.

Along with these forms, ID Proof, Address proof and couple of passport size photographs would be required.

Insurance Transfer: Once RC is transferred in your name you need to approach the insurance company to get the transfer of insurance in your name. If the RC has hypothecation, then even the insurance policy should be updated of the same.

Note: If RC is transferred in your name and insurance is not, you will not get a claim from the insurance company.

Please see know your paperwork, to learn more about the paperwork involved at the time of buying and selling used cars.

PUC Certificate:  This is another mandatory document which you need to carry with the car, this has a validity of 3 to 6 months, so you need to renew. Most of the fuel filling stations have a PUC booth where you get the certificate.

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