Showing posts with label visa. Show all posts
Showing posts with label visa. Show all posts

Sunday, July 22, 2012

Recent Grad, Fresh Job... Buy Car?

There are so many draft posts for this blog, this kinda breaks the flow of things, but oh well, just writing whatever I feel like and then posting it in whichever order I am able to finish writing them. I recently graduated from the University at Buffalo, with a Masters in Computer Science (Artificial Intelligence) and after months of job hunting, finally landed my first job at SemaConnect Inc. in Maryland. There are many things to cover, but in this post, I will be covering the next biggest thing to happen after one graduates and finds a job; car purchase.

This entry will more or less achieve the goal of a "Buying a Car 101" post. Not everyone will find this post very useful; its just for the small subset of people who, like me, are in the US on a Visa, are recent graduates, and want to buy their first car. I will follow a freestyle writing pattern; I will alternate between what thoughts I went through when I was researching for a car, and list out what I feel are importing things you should keep in mind. Hopefully, you will find this useful in some way or the other. So let's being!

The various variables of a car purchase decision.


Tell me what's your Budget.

You, of course, should have a budget in mind before even thinking about buying a car. Any kind of big purchase starts with the budget. It can either be with the "Maximum I want to spend on a car" or "Monthly payment that I can manage for the car" basis. These contain various variables. You can either buy something completely by cash, or you can put a little bit down and then loan the rest of the amount from a bank. Be it loan or complete payment, its good to have a maximum expenditure limit fixed in your head. This would be the amount that you will spend on the car over all years that you pay for buying it. In most cases, you might end up taking a loan, so at this point, instead of calculating what APR you should get etc., have a monthly payment and total period of loan embedded in your brain. 

More details on costs and payments as it comes in other topics.

There is no specific order in which you can single out the car you want to buy. Once you have some kind of budget in mind, think of the whole car buying process as a sum of n-variables whose sum is the total budget. If you get a bigger size car, the features might have to be reduced. If you buy a smaller car, maybe you can buy a new one. I will try to list out categories that will constitute the majority of these "n-variables" and then you can go about adjusting the coefficients of those variables to your liking.

The Car (linear) Equation:
a(Condition)+b(Make)+c(Type)+d(Specs)+e(Features)  = Budget

What's your type?

So, by now you have at least put a little bit of thought into how much you want to spend. Not until you actually have your new car's keys in your hand will you know exactly how much you are going to spend on it. However, with a starting point in your mind, now you need to know what type of car you can get with that budget.

It can be a mid-size 4 door Sedan ( Corolla, Civic, Cobalt, etc ), full-size 4 door Sedan (Camry, Accord, Impala etc.), 2dr Coupe, full size SUV, etc etc. It can be many things. Start off by going to a site like and see what all options you can select as a type of car. Only you know what type of car you want.

Lingo: Trim defines which version of a certain car it is. "LE","SE" etc. are various Trims that a Toyota Camry is available in.

 Used or New? The Conditional variable

Well, my choices were either something new that is "in budget", or something used but maximum 3 years old and with 10k - 15k miles per year. One can be very satisfied with a 7yr old car with 70k miles on it too. It depends on what you feel best suits your needs. If you know you need a car just for an year or two, something within the 7yr/90k range might end up being the right one for your needs!

However, make sure that if you buy used, look a nice ratio of 12k to 15k miles per year on the mileage. Also, remember to check the carfax!

Lingo: Mileage is the total miles that a car has traveled till date and Economy is the Miles per gallon that the car gives (on city or highway). 

Which make to choose!?

No matter how much idea you have about cars, you might initially end up thinking a Camry or an Accord is the best make to go with. Well, that happens because they're what most people around you would recommend. The main reason for this to happen is that the general perception is that Japanese cars are very reliable, hence will not require intense amounts of maintenance. My word of advice would be to not stick with those beliefs if you are looking into buying something new. 

Try to first fix a "type" first and then research on what every Make has to offer for that type of car. If you are looking for a used car, as is often recommended, I too would recommend trying to go with a more reliable make (Toyota, Honda, Nissan etc).

The Resale conundrum.

A very common argument you will come across when buying a new car is about the "Resale Value". This argument makes more sense if you are familiar with "earnings" and "loss" when you invest in the Share Market.

The basic argument is that if you buy a reliable car like a Camry, it's resale value will be pretty high compared to that of a... say Ford Mustang and hence Camry is a better car to buy as you will get back "more money" when you eventually sell it down the line.

If you go deeper into these arguments you will hear statements like "The resale value of a Challenger will go down by 20% in the first year itself". It means that you will "loose money" more quickly if you buy such a car and in an unfortunate turn of events decide to sell the car off just after a year of using it.

I personally would not recommend thinking in such ways when planning on buying a car. Make a decision based on the many other factors out there, not by how much you might be getting back when you eventually sell it.

CarFax and what to look for in it.

If you decide you are going to buy a used car, there are many things you must observe before even approaching the seller for a deal. Many used car dealers will give you a free CarFax report right on their website for you to check. CarFax is basically a history report of the car. By looking at the report you can find out if the car was in a serious accident (a negative sign); find out how well maintained it was (if car is serviced at a proper place, all details of the service are reported to CarFax). CarFax by itself alerts you on things to observe when it shows a car's history. Here is feedback on some of points that have conflicting opinions.

A car that has been reported to be a rental usually means that it was used like crazy by one different kind of driver every week for the one or two years it was used as a rental. That translates to very rough usage which generally doesn't mean good for the engine and it's life. These cars will usually have a lower price than similar cars, and for a reason. However, the counter argument for that, which you will often hear from the salesman, is that the car was "well maintained" because a rental company gets their car serviced and fixed very frequently; it is rather, maintained even better than a single owner would. I put this out there so that you are better prepared when the salesman tries to clean bowl you with such statements. You decide which side you of this argument you want to be. If a car is leased, it may not be a bad thing, it is just a single owner who leased it for 2 years, it shouldn't be looked at in the same light as a rental car.

The more number of owners a car has, the lesser the price it will go for.
Lingo: VIN is the Vehicle Identification number that is like the fingerprint of a car. All information about a car, its history, is tracked by that number.

Buying from Craigslist

This is risky business but you never know how your luck will turn out until you try. Just be sure to make your sale contingent on car's inspection. It should be such that you are able to show it in the Bill of Sale that you paid for the car under the condition that it will pass the inspection. (or else, have it inspected by the seller, before buying the car).

Things that would get the cost down are:
  • Dents and Rust.
  • Bad A/C.
  • Bad sound system.
  • Quality of brakes.
  • Check Engine Light? (Don't buy it if you don't want head-aches)
  • Cleanliness of seats etc.
  • Battery's age. 
  • Tyre's age.
  • Major repairs pending?
Make sure to check for those things and see that you get the right price for the car depending on much time and effort you will need to spend on it after you buy it.

Lingo: Title This is the legal document that you must receive from the seller (signed) when you buy a used car. You cannot transfer registration to yourself without it.

Features for an augmented experience.

There are many features to look for when it comes to buying cars. These are things that can make or break a deal for you. Some items on this list were my top priority when buying a car. I will be using my car daily for my 15 mile commute, so convenience was higher priority. Following is a list of things, in no priority, that are worth checking out.

  • Bluetooth - WITH A2DP (for streaming music from phone).
  • USB Port / iPod Sync. (  Best if it has Microsoft Sync! )
  • Large display screen for all controls ( additional: Back-Up Camera)
  • Side-mirror defogging.
  • Fog Lights.
  • Sun/Moon Roof & Sunglasses compartment ( if in sunny areas).
  • Motorized seats (additional - Lumbar Support, Memory).
  • Alloy Wheels (mostly cosmetic).
  • Cruise Control.
  • Proximity Warning.
  • In-built GPS.
  • A/C fans for rear seats too. (Bigger sedans)
Well, those are basic and maybe mid-luxury level features that a car can have. There's way more stuff like ambient lights, running flat tire, touch screen display etc etc. What you feel is necessary or vain is all up to you.

The innards.

If you are really into cars, well, you may have found this post not very useful till now. Anyways, here is a very quick way to understand things.

V6 Engine - More VROOM and Less Economy.
4Cylinder - Silent, better Economy.

Higher the "liters" in the engine (2.2Liters etc) the better/smoother the driving experience will feel.
A good blind decision would be to go with a 4Cylinder with >2.2L engine. There are many other things like torque and other stuff which you might look into if you are really into the feel of the drive.

Enter Car Dealer: Intense car purchasing experience.

The Process

The actual process of going into a car dealership and buying a car is going to be the most difficult task you will do.

The first and foremost point to remember. Do not go into a car dealership until you are familiar with all these things I've talked about and you can handle yourself easily out of a forced situation.
Do not sit down with the salesman and have them see what your monthly payment will be if you buy a car. Only do this once you feel that you really want to buy the car.

To find out what your monthly payment would be (for the car loan) they will have to run a credit check on you via a bank. For every bank they try for a loan, it will be a HARD credit check on your credit score (Which is processed with your SSN number).

If there are large number of HARD checks on your credit history, it is usually implied with a "Tried to get a loan, but was denied", which in turn lowers your credit score and reduces the chances of getting a better interest percentage (APR) on your loan when you try again.

Always do your re-search online by looking at the inventory at the car dealer's website, single out what you might actually be interested in. I would say, after looking at maybe 10 different sites, its best to pick 1 or 2 that you may want to actually go to the place and see.


Internet Price:

Car dealers use bogus terminology like "Internet Price". It is a very low price tag for the car which include all kinds of rebates and concessions, all of which which you most probably will not be eligible for. Always add at least a 1000$ to the online price when you estimate costs. 

Remember that you will also have TAX and other dubious costs like "processing fees (not required by law)", "Used car checking fees" along with charges like "Freight", "Title & Tags", "Inspection".

Always try to bargain on the On-the-Road price. This is the price you will be paying finally, Also include the tax in this for easier calculations. Once you know the estimate for an On-the-Road price. Which would be "Car + Tax + Tags + ..." you will have to decide how much you are willing to put down and how much you want to loan.

Car Final Price at a dealer:
Advertised Price + Tax + Registration + Inspection + Freight + Processing Fee + dubious charges + additional services.

Depending on your credit history (which will not be much if you are in a similar position as me) you will get better rates if you take lesser loans and try to repay them quicker. Try for various incentives that you will be eligible for. Things like "Recent Graduate" specials, which will allow you to get good APR (interest rates) on your loans even with unimpressive credit report. Or the "First Time Buyer" which will make loan approval easier for you. If you buy new cars, often if you take the loan from the financing firm of the same company as your car's make. You will get good rates.

And one more thing.

So you've found the car you want, got a nice loan approved and are ready to buy the car. The drama isn't over yet. From when you OK the deal to actually signing the papers, you will once again be bombarded with various ways to pay the dealer more money. If its a newer used car or new car, some of these things might actually be required for your car.

There will be things like "Alarm System", "No-rust under-coating", "Lifetime waxing", "Extended Warranty" etc etc. All these may or not be as useful as they make it seem. You will be wasting an hour or more dealing with all these things. Now that you know they are going to ask for such things, just be prepared to give a quick and firm decision. Do not wait for them to push a decision on to you. 

The most import part: Actual Payment

A very important thing to understand is how you will actually be paying for your car. The terms in which all Car dealers talk is "Monthly Payment". In most cases you are going to take a loan, and in most of those cases you will try to get a loan approved right at the dealership (unless you have got a loan approved from some place else on your own).

You need to have a good understanding of what monthly payment and for what period will your budget be. But the way car dealers work is, once you mention a monthly payment to them. They will say "Oh ok, we can do that" and try to get to such a monthly payment but for a higher period of loan payment.

If you have $400 a month for 36 months fixed, they might come up with $420 for 36 months and then pull a "Let me see what I can do" and get tell you "Yes we can do it" and propose a $400 for 42 months payment plan or the like. 36*420 is 15k and 400*48 is 17k. At the sacrifice of paying lesser every month, you will be paying an additional $2000 over the period of a year.

The smaller period of loan, the lesser interest you pay for your loan. But if you choose a longer period for repayment of loan, you will get a higher interest for the privilege of paying lesser amount every month.

The basic thing to understand here is that, you need to have good estimates of what monthly payments you would want to pay for 36, 42, 48, 60 months and then be prepared to understand what total amount you will be spending over time. Decide what kind of spending you want. If it doesn't matter to you that you pay more over time you can choose a longer period, and if you know that you will keep the car for longer than the loan repayment period, you might want to pay lesser interest.

A good understanding of all these dynamics will get you prepared for buying the right car. So make you get it all figured out before jumping into the wild and getting bombarded with car dealers ways.

Lingo: APR is the Annual percentage rate that you will be paying for the money you loan. Your credit history and score decide how much APR you get for your loan. Being a new grad or first time car buyer might incentivize your APR to lower values. It is best to have a monthly payment in your mind rather than figuring out what APR you want. However, try to not go for an APR higher than 4.5%

In Conclusion.

Well, like I said multiple times already, buying car is not easy. There are many things to consider and there is so much research to do. So if you know you are going to buy a car and want to feel like you are satisfied with the decision you made, make sure you have spent some time at least thinking of all these things I've mentioned.

There is so much more that goes into make such a decision, on an average one spends almost a month doing all the research. So get ready for intense decision making.

Well, I started with a $8000 budget thinking that I would be needing a car just for a year or two which changed to a completely different estimate by the time I bought a car.

Ended up with this.

2010 Accord Coupe EX-L