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As a prospective buyer, the Indian car market offers innumerable choices keeping in mind the budget, fuel requirements and terrain. One no longer has to rely on just Hindustan Motors Ambassador or Premier Padmini for motorcars. It is always recommended to do your homework before going to a dealership to purchase a car. To make the process simpler, we have tried to divide it into different steps.

Step One: Know your budget

The cost price of a car is not the only expenditure that a car owner has to accommodate. When purchasing a car, the buyer should keep in mind not only the purchase price but also the subsequent expenses. For example, if someone wins 80L in a lottery and decides to purchase an Audi A7, the person will have to keep in mind whether they can afford the regular maintenance of the car, depreciation, and handling or payment of insurance premium.

Expenses to keep in mind:

  1. Depreciation: A car or any movable asset for that matter is just that – an asset, not an investment since there is no foreseeable return from it; rather, they are all subject to a depreciation cut – 10%, 20% and so on as soon as they are purchased.
  2. Insurance Premium: It is an unavoidable cost since a part of vehicular insurance is compulsory in India. At present, this is a percentage (anywhere from 3% to 4%) of the book value of the car (Cost – Depreciation).
  3. Fuel Costs: Irrespective of the decrease in oil prices worldwide, the fuel prices, to be paid by consumers in India are steady and might as well experience an increase. So the consumer should definitely keep in mind whether they want to purchase a Petrol, Diesel or CNG vehicle. Also, while considering fuel costs, one must keep in mind the legislation. For example, diesel cars above 2000 cc are banned in Delhi and presently, owners may have to pay a diesel cess, above and beyond the luxury cess.
  4. Interest rates: When cars have been purchased on EMI, interest rates on such EMIs also have to be considered.
  5. Maintenance/Repairs

Step 2: Buying a new car or an old one

With a large number of cars already present on the Indian roads, and online portals like Olx and cardekho, car buyers have the option to purchase pre-owned cars.

Advantages of a used car:

  1. Payless for a car: In cities like Delhi, where 45 percent of car buyers are below the age of 29, looking for an upgrade from two-wheelers, used cars form a huge part of the market where people looking for a sedan or even a hatchback will have to spend less on a good car. A one-year-old Skoda Octavia RS, which retails new for almost Rs.15, 00,000, can be had for about Rs.9, 50,000 – little more than the price of a new Honda City Vtec. Further down the price range, a late-model Honda Accord can be had for the price of a new Suzuki Swift, and a 3 to 4-year-old Honda City, Mitsubishi Lancer or Maruti Baleno will go for close to the same price as a new Alto.
  2. Availability of Finance: It is easy to finance pre-owned cars with easy borrowings from financial institutions.


  1. Need for more maintenance
  2. Less depreciation and therefore, higher insurance premiums and low tax write-offs
  3. Unreliable owners

Step Three: Deciding the Fuel type

Petrol car vs. Diesel car in India:

  1. Better efficiency in a petrol engine as compared to diesel.
  2. Petrol cars are cheaper and the initial maintenance is also low.
  3. Gears are short so, petrol cars are easier and smoother to drive.
  4. Petrol cars emit less, and are, therefore, more environment-friendly.
  5. Petrol Cars are easy to modify to other fuels.
  6. Also, Petrol cars do not make as much noise as diesel ones.
  7. Diesel cars have a high torque output and it is easier and smoother to accelerate.
  8. Higher fuel efficiency in a diesel car in comparison to a petrol car.
  9. The number of service and maintenance requirements in the case of a diesel car is lesser.

To conclude, we can say that petrol cars’ purchase price is lower than diesel cars but the cost of fuel makes up for this. Also, if you are not a frequent user of cars and do not take long trips, a petrol car is a viable option. However, if you are somebody who needs to frequently use your car and take longer trips, diesel is less hefty on your pocket. It also depends on how long you wish to use the same car. If you are using the same car for more than 3-4 years, the cost advantage of a petrol car is nullified by the fuel prices of diesel.

In case, someone is considering a CNG car, they should keep in mind the availability of the fuel in their surrounding areas and that CNG cars provide lesser mileage than petrol or diesel. At the same time, they are environment-friendly.

Step Four: Make of the car

Whether you are purchasing an SUV, sedan or hatchback depends on a lot of your requirements:

  1. What is your budget?
  2. The number of people traveling in the car – size of your family.
  3. What purpose does the car serve?
  4. What terrain are you going to be driving it on? A Nano or an Alto is difficult to drive on rocky terrain and an SUV is preferred.

Step Five: Ensuring the paperwork

When buying a car, ensure that you have the following documents handed over from the previous owner:

Registration certificate: The RC is the most important document and provides vital information about the car, including its chassis number and engine number. It is important to check the state in which the car has been registered. It is a time-consuming process, therefore, most people avoid it but it can lead to problems in case you meet with an accident.

In case of a pre-owned car, check whether the engine has been changed and if so, ensure that the RC has the new number. Also, verify that the acronym DRC does not appear on the certificate since it translates into a duplicate registration certificate. If it does, ask the seller for the reason.

Insurance: Get the insurance transferred to your name. Otherwise, it will be tough to process a claim in case of an accident.

While transferring the policy, check if the premium has been paid regularly, the expiry date of the policy and if insurance has ever been claimed. The latter will help you know whether the vehicle was involved in an accident.

Also, find out if the car has third-party or comprehensive insurance.

If the insurance has expired or is due to be renewed soon, you could bargain with the seller for reducing the price of the vehicle.

Form 32 & 35: You will need these documents if the previous owner had taken a loan to purchase the car. Before buying, ask the seller to give you a copy of the no-objection certificate from the finance company, which will clarify that the entire loan has been paid off. If you don't take care of this detail, you could be in trouble. The lender may ask you as the new owner to pay the pending loan.

Service book: You should go through the service history of the vehicle since it will reveal to you the condition of the car. A vehicle that has been serviced on time and through authorized centers will be in a better running condition than one that has been serviced infrequently.

Road tax receipt: This tax is a one-time payment, which should ideally be paid by the first owner of the car when he registers the vehicle. If it hasn't been paid, the penalty can run into lakhs of rupees over time, and you, as the new owner, will have to bear this financial burden. The tax varies among states and ranges from 2-18%, so you should ensure that the seller provides you a receipt for the tax paid.

Car purchase invoice: A dealer or a company will provide you a printed bill along with the car. Even if it is not mandatory in the state you live in, insist on having one. However, this may not be possible if you are purchasing the car from an individual.

Dual fuel certification for retro fitment: If the car has been modified to run on two types of fuels, ask the seller for the dual fuel certification, as well as a NOC from the RTO, which certifies that the vehicle can run on both fuels. The retro fitment is a replaceable piece in the vehicle and has a guarantee of five years from the time it is installed, so you must ask the seller for its sale receipt too.

Final Step: Financing and Insurance Decisions

How are you going to finance your car and what will be the impact of the above decisions on the insurance policy? Can you do without an insurance policy?

When deciding how to finance a car, the owner may decide to purchase it on credit or without. When purchasing on credit, one must keep the following points in mind:

  1. What is your monthly installment?
  2. Whether you are paying a feasible interest rate on the loan.
  3. What is the period of paying back?

In the case of a pre-owned car, financing is more difficult. The following factors play a huge role in determining whether you will get finance and what shall be your interest rate:

  1. Age and make of car: If the car model has phased out, it is unlikely that the car will be financed. If the car is four years old, then you might get a loan only for three years.
  2. Interest rates are higher

Insurance Decisions

In India, it is compulsory to get your car insured, as mentioned earlier. One can opt for a comprehensive policy as well to ensure all additional requirements. The following factors impact the insurance worthiness of a buyer and also, determine the premium policies to some extent:

  1. Car model: If the car has phased out the premiums will be higher.
  2. Value of the car: As already discussed, the insurance premiums are generally a percentage of the book value of the car.
  3. Power/engine: The higher the speed the car has, the more likely it is that it will be involved in an accident. Therefore, the premium goes up with the engine capability.
  4. Modifications: In case you want to modify your car, you must inform the insurer. Not doing so, might land you in trouble.
  5. The desirability of the model: If the model is particularly desirable, the insurer will consider you at a greater risk.

I would rather suggest you compare car insurance online. By comparing insurance plans online you can choose a low cost plan that suits your needs.

In addition to the above car-related factors, the driver (purchaser) also has affected the insurance conditions:

  1. Age of driver
  2. The creditworthiness of the driver
  3. Occupation
  4. Postal Address
  5. Driving History

So, next time you are planning to buy a car, keep in mind the do and don’ts mentioned above. They are sure to come in handy.

Naval Goel is the founder of He is an Associate Member of the Indian Institute of Insurance`, Pune. He has been authorized by IRDA to act as a Principal Officer of Insurance Web Aggregator.
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