Monday, December 03, 2007

Buying Cars in US – Do’s and Don’ts

In US having a car is not a luxury but a necessity. It would take me more than 90 minutes to go to my office daily in bus compared to 10 minutes in my car. One is faced with lot of questions and confusions while buying a car. The confusions and questions – whether to buy a new car or used car; if it is a new car which brand to buy; if it is a used car – if to buy a relatively used car or an old car – you have to make a lot of decisions before you nail down on one car. A friend of mine wanted to buy a car and asked me for my advise and this is what I told him - some do’s and don’ts while buying the car that I learnt observing people buying and selling car.

First thing I tell every one – if you are planning to buy a new luxury car (like BMW and Lexus) be ready to lose hell lot of money over a period of time. These luxury cars depreciate at an average of $5000/year in the initial few years. If you are ready to spend large amount of money in return for luxury then you can go for a luxury car.

I have seen people coming here for short term assignments (like those coming from software companies in India) or those who are not sure about their length of stay in US buying a new car. This is one of the most foolish moves on their part. Never buy a new car if you are not sure you can use it for at least 5 years. It is during the initial few years that the car looses its maximum value and if you are selling during that time you are bound to lose hell lot of money.

Another thing I have seen that I could never recommend any one to do – this usually happens with someone who has only less amount of money to spare – like a graduate student or a student who just graduated and got a job. Since they have practically no money in hand and they need a car, they opt to buy a very old Asian car (like Honda or Toyota) since it has a resale value. They will buy a car that has 100,000 miles on it for around $5000-$7000. I have seen so many of my friends buying like that. But for most of them in the very first year itself they end up paying a lot of money for various repairs. Yes, Honda and Toyota are great cars but once it has 100K miles on it, to make it run, you may have to take it to the mechanic once in a while. I know handful of my friends who bought such cars and spend thousands of dollars on it for repair and finally somehow disposed them off.

So what is the way out if you don’t have a lot of money to buy a car and afford only around $7000 to buy a car? I will suggest you buy an American car with less mileage. They may not have a great resale value but since it has only less mileage your visits to the mechanic will be reduced considerably. So instead of buying a Toyota Camry or Corolla that has 100 K miles on it for $7000 you can buy a Ford Focus that has 30K miles for about the same price. It won’t give you any problem for another 30,000 miles at least. So you save a lot there that will compensate for the lack of resale value.

If you drive less than 5000 miles a year never buy a new car. One of my friends bought a new Toyota Camry last November. Till now he has put only 3000 miles on it. He goes to his work place by train and he uses his car only for small trips to the store or very long drives that happen once in a blue moon. I always felt that the decision of my friend to buy a new car when he knows that he wont drive much was a foolish one. Whatever be the resale value of Toyota its value will depreciate at least $1000/year. So my friend who just drove 3000 miles is losing 33 cents (on top of gas price) on his new car for each mile he is driving. If I were him I would have bought a second hand Toyota instead of a new one.

So if someone asks me my suggestion about second hand cars this is what I will give them. Very rarely does the value of a car appreciate. Ninety nine percent of the time it depreciates. So what is the best way to beat depreciation and buy a good car? I will always go for a second hand car that is about 3 years old. In that way the car has undergone the maximum depreciation in 3 years and mechanically will be in good condition.

Another piece of advise to those who are buying a car – never “rush” and buy a “second hand car” when someone gives you a great “deal”. They may be inviting you to a trap. This has happened to couple of my friends. One of them was planning to buy a car. He saw an advertisement about a 2000 model Toyota Camry that has 90K miles on it. The owner was asking for $4500 when the good condition in Kelly Blue Book was about $6800. My friend thought it was great deal and without doing any research bought the car. On the 6th day after he bought the car, it broke down and he found that his car had a transmission problem. He ended up spending more than $2500 to fix it. The guy who sold the car knew about the problem and that was the reason he sold it. So if someone is ready to sell the car for much less than the market rate, in most cases they have something to hide and may want to dispose that car as soon as possible. Never fell into that trap.

I am sure there are more things to consider when you buy a car. These are things I have noticed in the last few years about buying cars. Before I sign off let me tell you the car I have is a 2003 Saturn L200.

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