Hidden Costs of Buying a Used Car: Insurance NCB, RTO Transfer, and Repairs

Buying a used car may come with various hidden costs beyond the quoted price. This includes maintenance and repair costs, mandatory RTO transfer charges, car insurance premiums and the No Claim Bonus (NCB). In India, the used car market is thriving, with sales reaching 5.17 million units in FY23 and projected to double by FY28. While purchasing a used car offers the benefit of a lower cost of acquisition to many buyers, it is necessary to know the complete picture. Keep reading to learn more about what hidden costs you must be aware of when buying a used car.

Used Car Insurance and the No Claim Bonus (NCB)

Car insurance is a mandatory cost on an annual basis, with specific conditions for second-hand cars. Related to this is the No Claim Bonus (NCB), which is a reward that insurance providers give to policyholders in the event of no raised claims in a given policy year. It works as a discount on the premium for the succeeding year. For example, the NCB for the current year is a 15% discount on next year’s premium. This discount keeps increasing for every consecutive year that goes by without raised claims.

When buying a used car, the car’s insurance and its NCB belong to the prior owner and not the vehicle itself. The seller can transfer their policy and NCB when they purchase a new car, making the most of the discount to reduce their initial premium payment. You, as the buyer, must buy a new policy without any NCB benefits.

However, if you’re eligible for a NCB on your previous car’s insurance, you can transfer it over to your new second-hand car! This puts the advantage back in your hand as you save substantially on your initial premium.

How Your Insurance Premium is Calculated

Some factors affecting your used car insurance premium are:

Insured Declared Value (IDV): This is the present market value of the car, and it depreciates with age. The lower the IDV, the lower the premium can be.

Your NCB: As the new owner of a second-hand car, this will start at zero, unless you transfer your previous insurance and NCB to the new car.

Other Variables: A few other factors, like your engine capacity and your location, can influence the final premium.

Also Read: How to Transfer Insurance After Buying a Second-Hand Car?

RTO Ownership Transfer Charges

You officially receive ownership of the car not when you pay the seller, but when you complete the process of transferring the Registration Certificate (RC) at the RTO. Part of this process is paying the transfer and endorsement fee, which depends on the RTO and generally ranges from INR 500 to INR 2,500 (for intrastate transfers).

Purchasing a vehicle from another state also involves the costs of obtaining an NOC (No Objection Certificate) and paying the full road tax in your home state. You’ll typically have an agent looking after the paperwork; agent fees can be anywhere from INR 2,000 to INR 5,000.

Also Read: Documents Required for a Used Car Loan: Complete Checklist

Post-Purchase Repairs and Maintenance

Any used car will have some wear and tear, and it’s up to you as the buyer to make any required repairs. While it’s advisable to always conduct a thorough inspection of a used car before buying it, budgeting for certain repairs is advisable; even a good inspection can’t predict when an old part will need replacing.

Some Common Immediate Replacements

• Tyres: One expensive and common discovery is a full set of worn-out tyres. Generally, for a regular hatchback, it amounts to a replacement charge of anything between INR 12,000 and INR 20,000.
• Battery: A battery in a car lasts 3-5 years. If the battery is old, the new one would cost INR 3,500 to INR 7,000.
• Brakes and Suspensions: Worn-out brake pads and weak suspension systems are matters of utmost safety and should be treated with the highest priority, whatever the treatment costs might be. Rates may start from a few thousand rupees for the brake pads and over INR 25,000 if an overhaul of the entire system is needed.

Investing in a Pre-Purchase Inspection

While you can conduct a pre-purchase inspection yourself, consider opting for a professionally conducted inspection instead. Costs generally range from INR 2,000 to INR 4,000 but it can help you save significantly later. For the price, you’ll get a report detailing the mechanical condition of the car alongside any hidden damage. This report enables you to either negotiate for a better price on the car or refuse to go ahead with the purchase should the damage be extensive.

Also Read: What is Depreciation and Factors That Affect It in Case of a Used Car

To Conclude

If you’re planning to own a used car, always remember to account for these hidden costs of potential repairs, mandatory RTO transfers, and the initial insurance premium. Set a budget plan that includes these things as well.

Looking to finance your purchase? A Pre-owned Car Loan can provide the necessary capital to cover both the vehicle’s price and these additional expenses seamlessly. Explore more on the Poonawalla Fincorp website to understand your options and secure the right funding.

FAQs

What is the biggest hidden cost when buying a car from another state?

The most significant hidden cost is the road tax you must pay in your home state for re-registering the vehicle. This amount is calculated on the car’s original price and can be fairly substantial.

Can I continue using the previous owner’s car insurance policy?

No, you cannot. You must buy a new insurance policy in your name immediately after the ownership is transferred, as the previous policy becomes void.

Is getting a pre-purchase inspection from a mechanic really necessary?

Yes, it is highly recommended as a crucial investment to avoid buying a car with expensive hidden problems. The inspection report also serves as a powerful tool for negotiating a better price.

What is NCB and why is it important for a used car buyer to understand?

NCB is a ‘No Claim Bonus’ discount on your insurance premium that you earn for claim-free years. You cannot use the seller’s NCB, since it belongs to them and not to the car itself, meaning your first insurance premium will be higher than you might expect.

How much should I set aside for immediate repairs after buying a used car?

This varies greatly with the car’s age and condition, but a safe approach is to budget a buffer of 5-10% of the car’s purchase price. This fund can cover unforeseen expenses like new tyres or battery replacement.