Cars

Making an Argument for Secondhand Cars

In this day and age of “low, low downpayment” schemes, is it okay to buy secondhand cars?
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Secondhand cars: are they worth it? It’s the question on every car buyer’s mind and a major watercooler fodder, especially for guys. Everyone has an opinion and I love how it gets people going on this unending and ridiculous back and forth.

There’s no definitive answer really, just like the "Kobe or Lebron" question, but some will disagree.

To try and settle it, we at Esquire Philippines tried to dig as deep as we can to get you an answer, or, at least, something closely resembling one. In the end, though, it’s really all up to you.

Let’s get to the cold, hard facts.

Depreciation

Automobiles are not an investment. The very second your brand new vehicle, paid for with hard-earned cash, rolls out of the dealership, its value in monetary currency immediately goes down.

If you’re in the market for a set of wheels, this is what makes buying secondhand a good choice.

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Unlike property, every second of every day the vehicle is with you, it’s worth less and less.

Buying pre-owned factors in depreciation, which lowers the value of the vehicle, making it more affordable, and appealing, for prospective buyers.

Let’s say you’re buying from an established reseller. This is what a sample computation would look like:

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A 2018 Vios 1.3 E Prime CVT with 10,000 kilometers on the odometer retails for only P550,000 all-in.

  • A buyer may choose between a 35 percent (P192,500) or 20 percent (P110,000) all-in downpayment.
  • If you put in a downpayment of 35 percent, you’ll only need to loan out P357,500. At 20 percent downpayment, the balance is P440,000.
  • Payment of the balance can be spread out through 36 to 48 months.

The 2020 Vios 1.3 E Prime CVT, meanwhile, retails for P936,000.

  • At 35 percent downpayment (P327,600), a buyer will still have to loan out P608,400.

Compare the two and you’ll notice that the loan amount for a brand-new Vios (at 35 percent downpayment) is almost double that of the two-year old unit that should still be covered by manufacturer warranty.

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If the words “brand new” still mesmerize you and you want to lower that 35 percent downpayment to rock-bottom price, go ahead, but—and this is what most first-time buyers don’t realize—the lower the downpayment, the higher your monthly amortization.

Imagine this: for a low downpayment of somewhere between P30,000 to P50,000 and bank approval, a buyer can delete their Grab app and drive home a brand new City or a Jazz the very same day. The hitch? The monthly amortization for five years is at a budget-busting P16,000 to P20,000 per month.

But for every Yin, there’s a Yang, and we can’t just sweep it under the rug. Buying brand new, of course, has its merits, too.

Maintenance and repair

This has to go without saying: brand new wins, hands-down.

According to Jay Martin, service manager of Hyundai Commonwealth who has worked in the service department of various local dealerships for over 20 years, the warranty and vehicle history makes buying “brand new” the better option.

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“With a brand new vehicle, you get a fresh warranty, be it three or five years depending on the manufacturer,” he says.

Warranty is peace of mind that if, within the warranty period, a major component breaks down due to what automotive dealers call “material fault,” it will be replaced free of charge.

“Material fault” means it broke down without any outside influence, like wrecking your car because you rammed it into a tree while driving under the influence (DUI). The warranty does not cover consumable parts like brake pads, air cleaner, oil filter, etc.

Martin also adds that with a brand new unit, you’ll know every bit of the vehicle’s history because you’ll be the one to make it. No need to worry and wonder if it’s hiding a “dark” past, like being a flood-damaged unit or if it was involved in a major accident.

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And that’s what scares people about secondhand cars.

Hidden hitches

As great a deal as some secondhand, low-mileage units are, they also do bring their fair share of troubles.

Sellers love to use the “as is, where is” rule as an unspoken declaration that this vehicle has problems, and after you buy it, they’re your problems.

You don’t have to go Sherlock Holmes on the car to know its history. Just remember these tips, keep an eye out for these auto parts, and you should be fine:

- Better if you know the seller. He or she, will be less likely to hide or lie about certain issues with the vehicle.

- Ask for a copy of the Original Receipt (OR) and Certificate of Registration (CR), and verify with the Philippine National Police-Highway Patrol Group to know immediately if the unit is being fenced.

- Try to purchase a vehicle that still has warranty from the dealership but make sure it has a service record. Dealerships will void the warranty of a vehicle that gets its preventive maintenance service (PMS) elsewhere. If the unit is out of warranty already, still ask for the service record to know how well the vehicle has been taken care of. If the unit doesn’t have a service record but the owner says his trusty mechanic services it regularly, buy at your own risk.

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- Sellers won’t replace old, threadbare tires. That’s an extra expense they don’t need from a vehicle they’re getting rid of so it doesn’t make sense for them. Check and see how worn out it is. If the tread is at least 1.8 mm deep, those tires should still be okay.

- If the mileage is under 20,000 kilometers, then don’t bother checking the manual transmission. You should only get concerned if the vehicle is around four years old or has already racked up 80,000 kilometers or more.

- ATs are a little bit more resilient than manuals and unless it was used as a TNVS (transport network vehicle service, like Grab), it should be okay for a three to five-year-old car.

- Drive belts on the alternator and compressor need to be replaced every 60,000 kilometers or three years, whichever comes first. Timing belt, if applicable, should be swapped out every 80,000 kilometers; timing chains last much longer at 100,000 kilometers.

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- Brake pads should be checked. For ATs, replace after 20,000 kilometers, MTs at 40,000 kilometers.

- Drive the unit over humps. If it bottoms out on exit, you’re going to need new shock absorbers.

- If you feel vibrations and faint rattling through the steering wheel, that could be a tie rod or rack end problem.

- Hearing squeaking or knocking sounds? The bushings may be asking for a replacement.

All that for a secondhand car?

Well, yes, but that’s only because there’s really no perfect answer to this. It’s a case-to-case basis that depends mainly on your financial capability.

“If you can afford it, buy brand new,” Martin says. “The warranty is its biggest selling point. If something is broken, you can’t return it to seller and get it fixed. On the flipside, vehicles depreciate a lot. If you’re a practical person, find a secondhand car with low mileage and still under warranty, and go for it.”

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Remember, buying brand new will tie you up with a monthly amortization that can stretch to five years depending on your downpayment. But if you have a stable job, security of tenure and a computation that shows—factoring in inflation and cost of living—you can keep your head above water comfortably for the next three to five years, buy the car and save the sack of cash for something else.

If the above paragraph doesn’t describe you, or you’re just cheap? Then definitely go secondhand. If it’s still under warranty, you’re lucky. Otherwise, it’s a big risk not fully knowing the vehicle’s history. But that’s what you deal with to keep a quarter of a million pesos or more in your pocket.

It isn’t pretty, but it ain’t rocket science either. So, put your thinking cap on and make an argument because you’re about to make a decision that’s going to make a big impact on the next few years of your life.

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Eric Tipan
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