Buying a new car: You can afford it sir!
The greatest amount of depreciation in a car is in the first month perhaps. The fall is about 30-40%! Technically this means you should buy a 12-15 month old car and use it for say 8 years.
That would be a sensible decision, and a financially prudent one too! It makes a lot of sense to buy a second hand car.
However the dealer, car manufacturer, and of course your banker cannot make any MORE money if you commit lesser amount, right?
So what they do is push you to buy a new car. Of course it is subtle..but it works….here is the first hand experience of a friend…
A friend called up to ask ‘Why do i have to pay a higher interest RATE for a second hand car than for a NEW car?‘
How much is the difference? about 3-4% p.a. for 4 years…..so that you lose most of the advantage that you got in the price while buying.
Wow. Why does this happen?
Simply because the Big Auto and the Big Finance can get some extra money out of you. Simple.
Most people buy a car that they can afford. HR of companies are hand in glove – and they suddenly tell you
“Mr. K you are entitled to buy a car with an EMI of Rs. 33, 500 per month”
Fantastic. Mr and Mrs. K, perhaps with kids in tow go to a new car showroom armed with a lot of research.
He shows you a new car with an EMI of Rs. 34,000 pm. Mr. K is happy, but he also decides to look at a second hand car.
First his kids. Then his wife. Then the salesman. All are aghast at the thought that a Snr. Vice President (who needs all these props for his self confidence!) can even think of a second hand car. How Gross!
However, the reluctant salesman says …Sir a pre used car will cost you a little less..but not much sir….no sir car will be good, BUT sir…..
What happens is that the salesman has a different target – ONLY NEW CARS. So he will tell you sir only a 2-3k saving…’Why do you want to buy a second hand car?’….
So a whole program is created to make you buy a NEW car.
Why?
The guy who is buying a new car is a great guy. The guy who is buying a second car, is NORMALLY a guy who:
a) cannot AFFORD a new car (therefore he is buying a 2nd hand car)
b) he is a lesser risk worthy person (obvious is it not?)
Now if you are a person with a net-worth of Rs. 25 crores (your demat account has equity shares worth Rs. 18 crores), you are a HNI Customer (you do mutual fund SIP worth Rs. 300,000 pm) and your salary account is with the same bank, but you love a bargain, so you are buying a Merc S class which is 4500 km old, sorry the bank cannot connect these facts.
The guy at the counter will treat you like a second rate customer. Why?
Because you are buying a second hand car. So what that you are borrowing at 14% p.a. because your asset portfolio is likely to grow at 20% and hence u do not want to disturb it?
Well, I know a guy who bought a ‘Pre-used Merc’….now i know somebody trying to buy a high end VW.
The first guy laughed at the bank and paid a cheque, saying ‘go to hell’
Not sure what the second person is planning to do.
Wake up bankers all clients cannot be classified in buckets.
Ability to spend NEED not mean Propensity to spend. At least not after a particular threshold.
shinu
Subra sir
last month a funny experience when I was told I cannot open an a/c for my nri brother with a cheque of rs 1000/- bcoz the bank policy is of minimum balance is 10000/- though I assured him ( even they called and verified my brother overseas too..) in max 1 week it will be well over their minimum… still didn’t allow.
opened the a/c in another bank with the same 1000, put fd of 10 lk, linked SIP with ECS and he is getting calls (service) from the manager almost every month…
Some banks/ managers/ experts are and remain stupid..
Sambaran Mitra
Hail Azim Premji
NPR
The other alternative to buy a 2nd hand car is through Cash purchase. That means, postponing one’s purchase by about a year or year-and-a-half. Or plan for it two years before.
Car is a depreciating asset.
krish
I have Samsung Note 2 and Iphone 5. Personally I like SN 2 verymuch. Noticed people admiration seems to be with apple brand than Samsung.
Dr. Mayank Verma
This was an eye opener article.
abhay
The first guy who bought second hand merc must be you 🙂 ….good decision sir
Ratan
Why would someone sell a 1yr old expensive car if i) there is no prob in the car -mechanical/legal etc, ii) he can afford it iii) he is not a super rich
Sambaran Mitra
@Ratan,
Somebody buys a nice car. Within 6-months there comes an offer of multi-year-foreign assignment. The car becomes a liability to be stored in a garage. People sell it and move on.
I see this happening a lot.
Sachin
@abhay,
Somehow I don’t see Subra sir buying a merc – new or otherwise. Even if he inverits or wins a merc in a lottary, he will sell it, buy an Indica or Nano and invest the surplus.
What say Subra sir? Am I right