H1B Visa Buy New or Used Car In USA, Lease or Loan?

Buy new car while on H1B or L1 work visas in USA. Easy loan from credit union on low interest APR builds credit history. Buying is better than leasing.

Written by Anil Gupta
  By Anil Gupta          Updated  6 Dec, 19

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H1B or L visa is a work visa and can be extended indefinitely by your employer. You are semi-permanent in USA in the sense that you can stay and work until the visa extension is denied.

If you can manage without a car, which usually is not the case in USA, it is advisable to wait for about 4-5 months and build a good credit history. Good credit history helps you get a car loan at a lower interest rate which is commonly known as APR in USA.

Most newcomers opt for buying a used car which I do not recommend due to its high maintenance cost and non-reliability.

Remember that Car insurance in US is charged on per month basis and can cost from $40 for just liability to up-to $200 for comprehensive coverage for newcomers to USA.

Buy New or Used Car?

Buying a new or old car decision varies by person to person but in my opinion, it is always beneficial to buy a new one if your stay is going to be longer than 13 months.
My opinion may sound contradictory to what you would normally hear from your peers when you land here in USA for the first time.

Most would almost always advise you to go for a used car within the budget of about USD 4-5K and save money. The primary reason behind this is ‘No credit’ history.

I would advise you to buy a new car. You can certainly get Auto loan and that too within an hour with no credit history.

Can Temporary H1B and L1 workers get Car Loan?

Any temporary worker in US on H1B or L visa can get car loan.

If you are new to USA, your credit history would be zero. They would still give out a loan to you but possibly with a higher interest rate. You should know whom to contact and how to negotiate on car deals.

Credit Union vs National Banks

You may face credit denials from conventional national banks like ‘Bank Of America’ or ‘Chase’. They also do not give out car loans for a tenure more than your H1B Visa’s validity.

My suggestion is to contact local ‘Credit Unions’ as they are flexible in their lending policies. They are nothing but small financial institutions who are more state centered than the national market.

I know many people who got 5 year car loan financed from ‘Digital Credit Union‘ in MA within an hour and that too with H1B visa validity of only 3 years. Similar credit Union banks operate in each state like California has CCU and Texans Credit Union for Texas residents. Do search for one in your state.

Car Manufacturer Finance Deals

Honda, Toyota and Nissan are the favorite brands due to their good resale value, engine reliability and better mileage. Keeping in mind the high demand for their family vehicles, these companies have also started 0% APR (zero percent interest) car loan offers if you get finance from their own sister companies.

Example:

Honda finance will lease or sell any of their car from Civic to CRV for 0% if you opt for Honda Financing.

Similarly, Toyota will be happy to sell you their best selling Camry at no interest cost to you.

I have seen more aggressive auto finance offers from Nissan though as they are trying to compete for your business with market leaders Honda and Toyota.

Lease vs Buy

I strongly suggest to buy the car even if you have to use bank finance than leasing. If you are not an expert in negotiations or do not understand the leasing tricks, you will almost always pay more for the car in lease than buying.

They will always try to sell you a lease deal by showing lower monthly payment as compared to finance, but, mark my words that you will pay more for same car at the end of lease than finance.

Cost Benefit Analysis of New Vs Old Car

We assume the car to be a Honda Accord or its equivalent like Toyota Camry in this example.

NewUsed
Starting Mileage10 miles100,000 miles
Peace Of Mind99.9% sure – No break-down in 100,000 miles.99.9% sure – OLD car can break down anytime after 100,000 miles. Break down in USA even once can dent your pocket with about $800 in towing charges.
Gas Mileage35/ gallon30/ gallon
Un-Accounted MaintenanceAssume zero.Assume about $150-200/ month.

 

Do not make the mistake of assuming there would be no maintenance on used Honda or Toyota cars.

Every used car needs maintenance. It depends on your luck on how big a hole it digs in your pocket.

Does Car Loan helps build credit history in US?

US Car loan helps build your credit history.

You can get an Auto loan from the car dealer or a credit union easily even if you do not have a credit history. Remember that any kind of credit helps you build your history.

The only difference is that if you have at-least 4-5 months of history, you can get a lower APR (interest rate) deal on the annual percent rates. Else, you might have to pay a little higher.

Example H1B case

H1B lands in USA with 9 months left on the approved 1 year. Used city’s average public bus transport (and no train) to commute to office or used to take help from fellow workers.

The grocery stores were at walking distance. The idea is simple to buy some time and build a fair credit history. Meanwhile, apply for H1B extension get a longer validity.

After 9 months, with visa extension of 3 years, applied car loan with credit union DCU.org and credit history rating of 678.
The loan was quickly approved by credit union even when it was denied by Chase bank and Honda Finance (from the dealer) before contacting DCU.


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   10 Useful Questions & Answers from comments



  1. ANISH MATHEW
    ANISH MATHEW 25 Oct, 17 at 12:45 am

    This post is 100 true. Buy a new car, not a used car if you need peace of mind and hassle free life. You will be sure of what you get and never need to look back.

    Used car is always a pain and almost all used cars has one or the other issues. Very few cars are issueless. You have to be super lucky to get one.

    So get a nice and reliable car. You can always go for mid options than base models and keep your mind at peace.


    • Anil Gupta
      Anil Gupta 25 Oct, 17 at 7:24 am

      Thanks Anish for your comment. We appreciate it.


  2. Prateek Chawla
    Prateek Chawla 17 Oct, 15 at 1:28 pm

    Hey, Off topic but would you suggest buying or renting a house while on L1 Visa?


    • Anil Gupta
      Anil Gupta 17 Oct, 15 at 6:53 pm

      Hi Prateek,
      It depends on your choice of staying back in USA and couple of other factors. The primary one that should define the ‘buying’ decision should be:

      1. Are you planning to file for GC (Green card)? If yes, and you have plan to stay here for at-least 8 years, then, yes, you should buy it.
      2. If your job location is permanent, then yes, you should buy a house.
      3. Housing market in USA is NOT like we have, back in India. The house prices here fall like anything if there is recession. You know what happened in 2008.
      Also, monthly maintenance and house tax are pretty high in USA, if compared with house in India.
      If you okay with managing those expenses, you should buy it.
      4. If your monthly rent is greater than $1200, you should consider buying a house. If it is less than 1200 for a house of your choice, you can avoid buying it.
      This is simply because, I feel that buying a house makes you inflexible with respect to job location. Since, your job location is highly dependent on visa and visa is tied to a location, you may have to move at-least once or twice in a span of 5 years.

      Movement is almost guaranteed if you move on to H1B visa.
      5. If you move to H1B and work as a consultant, you should first place yourself in a city where there are ample project opportunities and then buy a home.
      6. If you talk about us, we have not yet bought one here :). Still waiting for some more stability and cooling-off of housing prices.

      I would try to do an article on this topic for more detailed pros and cons.

      Let me know if you have any specific question in your mind or you need more information.


  3. Nidhin
    Nidhin 1 Feb, 15 at 11:34 am

    Hey, there is an option to refinance your car loan which enables you to buy the car within 2 months of landing in the US. Your initial 4 months will be on a higher interest rate and then you can refinance the loan with a much lower interest rate once your credit history builds up..


    • Anil Gupta
      Anil Gupta 1 Feb, 15 at 4:46 pm

      Yes Nidhin, You are right. That’s also a good option.
      Thanks for sharing.


  4. Tarandeep Singh
    Tarandeep Singh 22 Dec, 14 at 7:16 am

    I’m moving to US soon on H1b so that means my credit score would be zero. I’m planning to get a new car financed. Who would have better interest rate? Dealer (BMW finance) or Credit unions?
    And lets assume i start with car loan at ~7%, can i reduce it to ~2% once i’ve credit score in say 6-10 months?


    • Anil Gupta
      Anil Gupta 22 Dec, 14 at 8:50 am

      Hi Geeknizer,

      1. If you have never been to USA before, then yes, your score will start from zero. If you have been here before and had some kind of banking activity like opened an account or had a credit card (issued in USA), you would have some history, else no.

      Keeping in mind that you have zero history, credit Union would offer a better rate than the dealer. As a matter of fact, dealers also have tie ups with these credit Unions and they most probably would try to route your loan from there too. They make money of each referral. You know what I mean.

      In my specific case, even though Honda also offers the loan on their own cars, dealer tried to process it through Chase bank, then a credit Union which was Out of state and a third bank too. But, they all refused the loan even when I had credit score of about 700 and 1 year of history.

      Then, I applied in local credit Union (within my current state) and they approved immediately!
      I have found credit Unions to be more friendly with immigrants with respect to financing.

      2. Yes, you can reduce your loan rate anytime you are eligible and some other credit Union or bank is offering it to you. But, remember, there would always be some administrative or processing fee attached if you try to change the rate within same bank or Union.
      Normally, if you are transferring your loan to a new bank or Union, they would absorb or waive these fees.

      All the best.


  5. vivekvermani
    vivekvermani 22 Oct, 14 at 4:09 pm

    Lesson learned hard way but even i feel that buying a new car is a better option. The major reason is the Cost of Maintenance. I ended up paying more than 300$ a month on Car keeping in mind its depreciation and Maintenance ( As I had no idea regarding my car and went with whatever Mechanic asked me to do ). I could have got one on lease for little less than 250$ a month 🙂


    • Anil Gupta
      Anil Gupta 22 Oct, 14 at 5:02 pm

      🙂 I learned this lesson while looking at my friends….but..better late than never.