How to buy a Car

Did better this time, here is a quick summary

1. You can do much better than the MSRP - check truecar.com, compare deals
2. Talk to a credit union before going to the dealer, but ask the dealer to get you a loan.
3. Go with Friends to the dealer.
4. Don't ever fall for this trick:
1. This is a great car worth $40K, but since it is here for a year, i'm giving it to you for 28K
2. But you have to walk out with it.
3. Check the KBB value of a brand new dealer car, but with sitting at the dealer for a year. It will be worth 28k anyway.
5. Partially, use your CC to make the downpayment. You will get credit points.
6. Gap insurance is not needed if your downpayment is considerable.

Multi Level Marketing

I was recently approached by an MLM person. His persistence simply baffled, I decided to do a little research, and this is what I think.

An MLM is certainly not a pyramid scheme, but it operates in a similar manner. A pyramid scheme, which is patently illegal, doesn't have any products, it is just about recruiting other distributors. Joining fees are collected and this flows through the system from the bottom to the top.  This is also called Franchise churning.

Am MLM, is legal. It sells products, and the distributors can recruit other distributors to get a cut of the sales. But I feel, even this system will degenerate into something similar to a Pyramid. The emphasis will end up being on recruitment and not on product sales. Here is why -

1. A company with a distribution system that has to pay complex additional commissions cannot compete with a company with an efficient streamlined system.

2. So, MLM products will naturally be overpriced and will have very minimal outside sales.

3. If all the income is coming from inside, the company's profits and the distributors' commissions are also coming from the inside i.e. the distributors in the lower levels.

4. So, just like a casino or a lottery, in an MLM if someone has made money, more people should lose money. This is the design of the system

5. This is why there is such an enormous desperation to get random, reluctant strangers in as distributors. The truth is that they are needed as consumers i.e. they are needed to buy and not for selling. The overwhelming majority of them will remain so. 

6. Just like a lottery or a casino, people are lured by the promise of great riches, but most of them will end up losing money. They are kept inside though cult like propaganda, which is also another source of business for the top level distributors i.e. by selling motivational tapes, books, seminars etc.

This is the FTC line too..  http://www.consumer.ftc.gov/articles/0065-multilevel-marketing

It says- "One sign of a pyramid scheme is if distributors sell more product to other distributors than to the public — or if they make more money from recruiting than they do from selling."

So, outside selling is a crucial factor in determining if a business is legitimate. "Who is the customer?", Is he the same as the distributor? Which is why you should ask for these numbers, they should be open for any legitimate company

1. Amount of total sales
2. Percentage generated by selling to outside consumers.
3. Percentage of commissions paid to distributors.

Any feedback on this is welcome..

How not to buy a Car

This is something on a "lest I forget" note; bought a car in haste, and went through a little bit of heart ache. The silver lining is the experience and knowledge gained. So, here it is, in black and white.

This post is specific to buying a new car from a dealer. The process may work differently for leasing, buying a used from a dealer or an individual. This post is also not about researching the vehicle itself, i.e. the technical research. It is to describe what comes after you've made up your mind regarding a vehicle or narrowed it down to a few options.

MOST IMPORTANT THING: There are 3 levels of price addition above and beyond what is mentioned in the website. These additional levels of pricing are clearly mentioned in the final purchase contract that you sign with the dealer i.e the "Retail Installment Sale Contract". So the 1 + 3 levels of pricing:

1. MSRP on website: Manufacturer suggested Retail Price.

2. Dealer's asking Price: 1 + accessories

3. Total Cash Price: 2 + Sales tax + Service Plans + Gap Insurance + other minor fees.

4. Total Sale Price = Down Payment + (3 - Down payment) * APR.

If Price 1 is say around $27,000 Price 4 could be around $50,000. Once again, these levels of pricing are prominently and lucidly dealt with in the sale contract, read(peruse) before signing.

- Regarding 1: MSRP price is usually a gross oversimplification. The price without even the most basic accessories like automatic transmission and power windows and locks. Most dealers wouldn't even have cars like that even if someone didn't want those accessories.

- Regarding 2: This is the price with accessories can be up to $10,000 more than 1. Research that can be done here is getting quotes (Preferably emailed or hard copy, not verbal) from different dealers.

The aim here isn't to flaunt your bargaining skills. Most vehicles with the same accessories will cost almost the same with all dealers. Instead this research gives two other pieces of information:

a. If you had Price 1 in mind and if 2 >> 1, then settle for a cheaper brand.

b. You can get the features and color that you want. You may not care for sun/moon roof and blind spot sensors. You may like a rear windshield wiper and heated seats.

Be ready with the specific set of features you want and tell this to the dealer, before actually visiting the dealer physically.

- Regarding 3: Sales Tax is unavoidable, Gap Insurance is a good idea. You may be offered an extended warranty and/or a maintenance plan. They are optional. Here are the arguments for and against them:

a. AGAINST: almost unanimous opinion in all online forums is that extended warranties are just a means of boosting dealer profit and nothing else, regardless of the product being sold.

b. FOR: What if something goes wrong with the vehicle? The plan gives you peace of mind.

c. AGAINST: Almost any manufacturer will give you a 3-5 year warranty, Insurance will cover you for accidents.

d. FOR: Your interest APR will reduce.

e. AGAINST: But you still end up paying much more. The cost without the additional plan and with the higher interest and the periodic service costs is still lower.

Bottom line: A maintenance plan may be a good idea because it saves you the servicing cost, try avoiding extended warranty or choose a car where manufacturer warranty is 5+ years or 100,00 miles.

Regarding 4: The interest or APR that you pay is the part where you gain nothing at all in return (i.e other than the loan itself). Try reducing it to a minimum. If your credit history is good, then you must get a good APR i.e. around 5%. Some tips:

a. Watch out for APR offers in Ads.

b. Gap insurance + service plans can reduce the apr.

c. Account with the bank providing the loan and direct debit from your account can also reduce the apr.

REFINANCING & CANCELLING SERVICES:

For those of you who were as ill informed as I as was last month, Refinancing a car loan is paying of the whole amount using another bank and getting into an installment plan with the new bank. You could do this when the new bank offers you a much better interest rate.

You can absolutely refinance the car loan and you can cancel the additional services and plans immediately. Both of these things are explicitly mentioned in the Purchase contract and service contract documents at the back.

CATCH 1: As mentioned earlier, the terms of the loan may be dependent on the service plans you take up. After all it is the bank who owns the car until you pay them off. So they wouldn't let you cancel the services until you pay off or refinance the loan.

CATCH 2: Now, the refinancing(new) bank will refinance your car only for its market value(Price 2 - 10%). My own bank was willing to do it for 125% of the car's market value. This may not equal what you still owe the bank i.e. Price 3 - down payment.

Miscellaneous Tip:

Don't buy anything big right before a holiday lock down. You will have hell if you want to return it or change the order.