Although the sale of new cars has slowed down in recent years, the second-hand car market has boomed over the past year. It is now larger than the new car market in India. According to research on India’s pre-owned car market, about 3.6 million new car units were sold, whereas 4 million used car units were traded.
The drop in the new car sales rate is due to multiple reasons like a slowdown in the consumption of new cars and a degrading economy. However, there was a slight increase in the new car sales rate by 2.70% in 2018-19 but still was amongst the slowest growth in the industry in four years.
There was also a decline in the sales of passenger vehicles compared to its sales in the same month previous year. The decrease in the new car sales can only mean that the demand has been shifted to the used car market.
The question that most of us might now have is why people prefer purchasing a used car over a new one? Here’s a list of various factors that have led to the boom of the second-hand car market.
1. Changing Preferences
To simply put, India’s economic development has been on a decline, thus affecting the affordability of new cars in the market. This is the same when compared with other developed nations too. The ratio of people buying a new car over a used car is 1:3, which means that out of the four vehicles purchased, only one is a new car. This thus contributes to the growth of the second-hand car market in India.
The market value of the car depreciates in the first year itself. This decrease is up to 50% in value for most models. Hence, buying a used car is more affordable than investing in a new car. In practice, the used car market significantly relies on supply, which is not the case in the new car market.
According to experts, people who are selling their car within 3-5 years do not usually do it for the value of money. They just simply want to upgrade to a new or a better model. Even though if someone is looking for a good value for money when selling the vehicle, they are recommended to do so within the first 4-5 years and not beyond.
2. Unorganized Market
Even though the second-hand car market is growing, it is still highly unorganized. According to reports, only 18 percent of the market is organized (as of 2018-19). This is because the buyers and sellers are unaware of whether or not they are buying or selling their vehicles at a fair price.
People need to be aware of companies that inspect vehicles and determine their market worth. We believe that a little more transparency and fewer mediators can help the sellers gain much higher prices for their cars.
3. Financing a used car
Only 17 percent of the used car get financing from banking institutes. This is because the interest rates on used cars are generally higher by 2-5 percent. Seeking such a car loan solely depends on the risk appetite of the consumer.
On the other hand, the valuation of the used car is another challenge faced by most lenders. Each vehicle is evaluated differently based on its age, history, colour, and city. Although the process of securing a loan remains the same, certain factors during impact the interest rates imposed on used cars.
The Bottom Line
Whether you are buying a new car or used car, you must consider your needs and financial capability when making the purchase. Moreover, ensure that you have appropriate car insurance under your name. In case you are buying a used car, get the car insurance transferred from its previous owner.
You can get in touch with us at Finserv MARKETS for complete guidance on car insurance. With car insurance available on our platform, you can benefit from features like 24×7 roadside assistance, cashless facility, and insurance premium in installments with Bajaj EMI Card, hassle-free renewals, and more.
Also, read to know about what is IDV in car insurance, and then move on to buy Car Insurance at Finserv MARKETS online.
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