Hidden Fees When Buying A Used Car
Key Highlights:
- Hidden costs in a used car, like inspection fees, dealer charges, insurance, and maintenance, can add significantly to the purchase price.
- Always get a professional inspection, verify service history, and check for pending challans to avoid unexpected expenses.
- Plan for depreciation and future repairs by choosing models with substantial resale value and reliability to protect your investment.
Inspection Charges
Before making a deal, it is recommended always to get the vehicle inspected by a professional mechanic or through an authorised service centre. This will not only provide peace of mind but will also save you from unwanted future expenses. However, inspections come at a cost. While many dealerships sell certified pre-owned cars, this certification itself adds to the overall cost.
Dealer & Documentation Fee
Used car dealerships may charge several additional fees, including documentation charges, delivery fees, handling charges, and their commission. These can collectively add up to 8-10% of the car's price.
Registration and Ownership Transfer Fee
Once the deal is done, the first step is to transfer the vehicle registration to your name. In case of transfer to another state, a No-Objection Certificate (NOC) will also be required, followed by payment of road tax in your state. These taxes must be paid up front or soon after the purchase. And if the car was purchased on loan and the loan is cleared, you also need to get the hypothecation removed from the RC.
Insurance Transfer or Renewal
Insurance is mandatory by law, and when you buy a used car, you either have to transfer the seller's insurance to your name or buy a new policy altogether. A few more add-ons, like zero-depreciation or Roadside Assistance (RSA), can further increase the overall premiums. Depending on the model type, its age and policy coverage, a comprehensive insurance can range between ₹4,000 and ₹15,000 per year.
Maintenance and Repair
Even if the seller claims the car is in perfect condition, it may require urgent repairs or part upgrades, such as new tyres, regular service, suspension repair, or replacement of brake pads and clutch plates. All these can increase the cost very substantially.
Financing or Loan Charges
Since used cars are considered a greater risk, interest rates for used car loans are generally higher than those for new car loans. Furthermore, there are processing fees for balance transfers that can further add to your expenditure and increase the overall ownership costs.
Extended Warranty Coverage
Most used cars do not come with any warranty. However, specific pre-owned car dealers offer a warranty coverage for a shorter period, like 6 months. But these are rarely comprehensive and usually exclude some key components. To fill this gap, they offer extended warranty packages at an additional cost.
PUC Certificate
A Pollution Under Control (PUC) certificate is mandatory for operating a vehicle on the roads in India. Hence, one needs to ensure that the existing certificate is valid. If not, get a fresh one. Depending on the fuel type, it may cost between ₹60 and ₹150.
Accessories Upgrade Expenses
Most used car buyers spend extra money on personalising their vehicle, such as seat covers, sunshades, floor mats, upgraded infotainment or sound systems, or additional safety features like a reverse camera, dashcam, or other cosmetic improvements.
Verify Pending Challans
Before finalising the deal, check if the vehicle has no pending challans; otherwise, you might end up paying them. Several online websites allow checking online challans.
Depreciation and Resale Value Loss
While this isn't an upfront cost, you must factor in the lost value due to depreciation. Vehicles that were in low demand or discontinued models might drop in value faster due to parts availability issues. Furthermore, poor maintenance, missing service history, or prior accidents can further drop the car's resale value and compound your losses. So, if you plan to resell it in 3 to 5 years, pick a model with strong resale value and high reliability.
Tips to Save on Hidden Car Costs
- Never skip diagnostic checks and get the vehicle inspected by a trusted mechanic.
- Demand all service records, accident history and insurance claims.
- Negotiate dealer commission.
- Avoid unnecessary add-ons.
- Check for legal & police records for major accidents or liabilities.
- Plan for future repairs and maintenance.
Stay Informed to Avoid Unexpected Expenses
Understanding these hidden costs and expenses is crucial for making a good deal and avoiding any immediate future expenses. Always prioritise transparency, expert advice and rigorous documentation so that your purchase doesn't become a costly burden on you.
FAQs
1. What are some common hidden fees when buying a used/pre-owned car?
Ownership transfer, dealer documentation, insurance transfer or renewal, maintenance or repair, and optional add-ons can add up to your overall ownership cost.
2. Are interest rates on used cars higher than a new car?
Yes, finance companies charge higher interest rates for used cars due to the higher risk associated with them.
3. Is the previous owner's insurance transferable?
Yes, the older insurance is transferable, but you need to pay a transfer fee, and possibly an inspection in some cases.
4. How to check if the car has pending challans?
Challans are tied to the vehicle; hence, checking and getting them clear is crucial before finalising the deal. Various online platforms allow you to check pending challans easily.