Banks are cutting rates on retail loans and auto companies are offering festival discounts in their bid to ramp up their sagging sales during the festival season. Is there a better time to book your dream four-wheeler?
So here we bring you a quick guide on things to keep in mind while buying a car.
Affordability: The philosophy ‘buy the best you can afford’ does not really pay off in this case. After all, a vehicle is a depreciating asset. First, know what your budget is. What is the affordable equated monthly instalment (EMI) for you, in case you are buying the car on a loan. The loan will raise the total cost of your car. For instance, a Rs 3 lakh car, if bought on a seven -year loan at a rate of 15 percent, the total cost of car will be around Rs 5 lakh taking into account a processing fee of Rs6,000. Once the cost is decided, automatically a few models qualify as options.
Need and usage: There is an easy way to answer the most contentious diesel or petrol question – ask yourself a couple of questions. Why you need the car? How much will you travel daily? For instance, if you plan to drive more than 500 kilometres a week, or around 70 kilometres a day, it’s best to go for diesel car. If you plan to drive around 200 kilometers a week, petrol car will work well for you. Maintenance cost of a diesel car is higher than that of a petrol car. But on fuel costs, diesel variants beat petrol cars hands down, as in India diesel prices are much lower than that of petrol. For regular use, mid-sized and small-sized cars are better as fuel and maintenance costs of bigger cars and SUVs are higher. Also consider the parking space available. To decide the size of the car, consider the number of people likely to use the car. “A majority of middle class Indians go for smaller to mid sized cars,” says Samuel Jeyakumar, chariman and director, Carsalesindia.com.
Dealing with sales persons: To beat car dealers’ cunning sales tricks, you can use some old psychology. For one, time your shopping towards the month-end, when the pressure is high on sales persons to meet their monthly targets.
Also, if possible, deal with a younger sales person, as chances of getting a bigger discount are higher. The reason? For them, the pressure to meet the target is, in all likelihood, extreme. “Dealers can easily give you a 3 percent discount from their side, that too over and above the those from the car manufacture. But then, you will have to negotiate hard,” said a car sales person, with a car dealer in Mumbai.
While 1-2 percent is a decent discount on popular car models, for not-so-popular ones, they can even be 8-10%. If you already own a car from a particular manufacturer, or are linked to a dealer, you are in a better position to push for a loyalty bonus – usually not more than Rs 15,000. For all this, what you need the most is negotiation skill.
Colour: If you are not keen about a particular colour, you could save some money. “Metallic colours cost more than non–metallic colours. The difference could be around Rs 8,000 to Rs,10,000,” said Abdul Khan, general manager, Western India Automobile Association.
Accessories: This is where the dealers make the most out of you. Sales people influence you to jazz up your car with accessories. Buying accessories form the dealers can be expensive. “A leather belt with a dealer would be available for Rs 2,500 but the same quality could be bought for Rs 1,000 in the open market. Buying accessories from the dealer or manufacturer will always be expensive,” said the salesperson quoted earlier.
Resale Value: “An important thing to keep in mind is the resale value of the car. After all, a car that gives you a better resale value will eventually decrease the cost of your next car,” says Jeyakumar. Smaller cars usually have a better resale value compared with larger cars. But some car models and companies would fetch you 60-70 percent of their price, while others would get you less than 50 percent. Better not buy a car with no resale value. In order to get the best resale value, a car should be ideally sold after three to five years of usage.
Loan matters: Again, take advantage of the month-end pressure tactics. Direct selling agents (DSAs) and even bankers will be keen to meet their target and you may be lucky to negotiate a few basis point (bps) discount on interest rate. At times, dealers have tie-ups with financiers. Here, loan processing is easier. But do look to other lenders. Online portals can help. The dealers’ financier can easily knock out a few bps on the loan rate, especially if you indicate that you are serious about other options. In such cases, dealers usually get 1-2 percent as commission, opening up another avenue for negotiation. Your bank’s pre-approved loan might work, but still check other lenders. An existing relationship with a bank will enable you to easily negotiate for a 25-50 bps lower rate.
Good loan strategy: The aim is to get the lowest possible rate. Ensure that you make at least 20 percent as down payment, and borrow only 80 percent. Loan tenure should not be more than four years. Longer the tenor, costlier the loan, and in turn car. See that processing fee and prepayment charges are not too steep. Some banks have not prepayment penalty. But there are others with penalties as high as 4 percent of the outstanding loan.
Car Insurance: It’s not necessarily to buy car insurance from your loan provider. Shopping around could help you save a few greens. “Shopping around for auto insurance can easily give you a savings of round 20 percent on premiums,” says Rahul Agarwal, Optima Insurance Broker.