Spend Smart. What’s the big deal about discounts?

Thinking of buying a car? Chances are you may have been advised to delay your purchase as year-end deals are just round the corner. These offers generally begin from mid-December through January and can be large — about ₹30,000-40,000 in many cases. However, it helps to understand the type of discounts being offered and what you may end up losing when you opt for these deals.

Year-end discounts are generally offered by auto manufacturers, dealers, lenders or insurance providers. The type, amount and nature of rebate vary depending on who is providing them and what their motives are.

Dealer discounts Take the case of offers from dealers. They are keen on clearing their inventory by the year-end and bringing in fresh stocks by mid-end January. Their incentive to cut price is simple — buyers prefer the current year’s car models to those of the previous year. “Buying an older model would reduce your resale value by about ₹30,000 on a mid-sized car. That is the discount the dealer would be willing to offer you,” explains K Mahalingam, Managing Director of TSM Cars, Chennai.

The money you apparently save upfront may be what you might lose when you sell your car three or four years later. So, if you plan to change your car, you may want to weigh the advantage of buying the current year model against availing yourself of the discount on an older model.

That said, even if you hold on to your car for, say, eight years, you may still want to rethink whether to settle for an earlier model for a few reasons.

One, older models may not be very fuel efficient and this may increase your running costs. Two, newer versions may include add-ons and upgrades that may potentially enhance your car ownership experience. These factors may together affect the resale value of the car and offset the discount you get.

Manufacturer markdowns In some years, you may also see steep markdowns on specific car models. A possible reason for such deals is fall in the demand for these models.

Also, if a competitor plans to launch a car in the same category and price range, the manufacturer may incentivise buyers to close the deal quickly through deep discounts.

How do you know if you are getting value for the reduced price? This depends on how you zeroed-in on the model to buy. In general, it is advisable to pick the model first and then look for deals.

For example, if you get a good deal on two models, one that did not receive a raving review and another that you selected after thorough homework — on aspects such as fuel efficiency, comfort, safety and resale value — you may be better off opting for the latter.

Go for cash

Besides cash rebates on price, there may be other forms of cash incentives. A popular scheme is giving a higher price for an old car that is being exchanged for a new one. The terms can be made even more attractive with loyalty rewards — when the car exchanged and bought are from the same manufacturer.

In this case, you have to evaluate the price at which you may be able to sell your old car. If you can manage to sell your car at a price higher than what the dealer offers, it may be worthwhile selling it yourself and opting for a cash discount from the dealer.

Sometimes, extended warranty and some add-ons may be given to sweeten a sale. While the stated cost of these extras may be large, the question is whether you really want them. If you feel that you may not benefit from these, go ahead and demand cash.

Lenient loans Not just dealers and car-markers, but other service providers may also come out with bargains. For example, lenders may enter into agreements with manufacturers or dealers to offer favourable terms on car loans.

This could be in the form of lower interest rate or waiver of processing fees.

Financing done through the manufacturer’s lending arms may also be at attractive terms. Be sure to check if there is any lock-in on the loan period and the terms of prepayment penalties. Free or discounted auto insurance may also be bundled with your car purchase.

Before you sign up, ensure that the coverage terms are adequate. Also, verify the claim settlement track record of the insurance service provider before signing up.

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