6 Tips for Buying and Financing a Teen Car

Purchasing their first car is probably one of the most exciting things to happen in the life of a teen. Guiding a child through the process of buying and financing a vehicle is an opportunity to teach valuable life lessons and skills. If you’re considering a teen car here are six tips to make it a positive experience.

1. Add Up All The Costs Of Vehicle Ownership

Before deciding if your teen can afford a car, it’s important to add up all of the costs associated with vehicle ownership. To purchase a car you will have to consider more than just the price of the vehicle. The cost of buying and financing includes interest, taxes, and registration fees.

Once the vehicle has been purchased there are more expenses to think about such as gas, maintenance, and car insurance. Add up all of the upfront costs of purchasing a vehicle as well as monthly expenses to see what you are up against. Will your teen be responsible for all of these costs themselves or do you plan on helping to cover some of them?

2. Set A Realistic Budget

Next it’s time to look at your teen’s monthly income. How much money can they realistically part with each month? Do they have any other recurring expenses, such as a cell phone bill? Don’t forget to set aside some money for entertainment and other purchases.

From this you need to subtract the additional monthly costs of vehicle ownership that they will be incurring. What is left over is the monthly amount they can afford to pay for financing their teen car. While financing rates vary, as a general rule of thumb you can expect to be paying $25 per month for every $1000 that is borrowed on a loan term of 48 months.

Finally it’s time to figure out how much savings your teen has access to. This money will work the hardest for your teen when used as a down payment on the new vehicle. Once you consider all of the expenses and all of the funds available, you should have a pretty good idea of how much car your teen can afford to buy and you can get them set up with a realistic budget.

3. Research Vehicles

Now that you know how much car your teen can afford, it’s time to start thinking about vehicles. Will the car be used to get to work/school or just for leisure? Is it going to be a shared car with other family members? What will the vehicle be used for and how much will it be driven?

Once you have a budget set and an idea of what kind of teen car you’re looking for it's time to do some research. Take a look online at vehicles that fit both the budget and your teen’s needs. Doing some research at home before you shop will give you a better idea of what you’re looking for before sales people try to sell you something you don’t need.

Go over all the figures with your teen and let them be involved in the research process. This way they won’t be disappointed when they can’t have the car they picked out on the lot. Additionally it will teach them life skills that they can apply to other purchases in the future.

4. Consider Buying Used

Used vehicles have a reputation for being less reliable but that isn’t always the case. In some situations buying a certified pre-owned vehicle may be a better choice than buying a brand new teen car. It’s an option worth considering while you’re doing your research.

Most teens have limited budgets and a new vehicle may simply be out of their price range. Used cars are far more affordable than new ones and they depreciate more slowly. If you have a small down payment it’s easier to get financing on a used car because used vehicles don't lose a lot of value right after purchase like their brand new counterparts.

Additionally, young drivers are more likely to put a few dents and scratches on their vehicle than seasoned drivers. It may be wise to let your teen practice on a less expensive used vehicle rather than a brand new one that will likely cost them everything they’ve got. A young person might be better off with a cheap car now, allowing them to save for a better one down the road.

5. Be Prepared To Cosign On A Loan

Most teens don’t have a credit history and haven’t built up their credit score. This can make it tricky for them to secure financing at a decent rate all on their own. Your teen will probably need someone with an employment and credit history to cosign on their loan.

Being a cosigner on a loan makes you just as responsible for repaying the debt as the person you cosign for. The lender can come after you for the money if your teen doesn’t make payments on time. However, if they are responsible and trustworthy, having their name on the loan alongside a cosigner can help them start to build credit of their own.

6. Read Before You Sign

Buying and financing a car is full of learning opportunities and teachable moments for your teen. These valuable lessons can last them a lifetime and set them up for better decision making. One good lesson to learn is that you should always thoroughly read anything that you are expected to sign.

Buying their first car is exciting but don’t let that excitement cloud their judgement. Have your teen read their agreement before they put their name on it. Teach them to ask for clarification if there is anything they don’t understand before they sign any document.

Buying and financing a vehicle is a rite of passage for many teens. Parents looking to guide their teenage children through the process will have the opportunity to create teachable moments and life lessons. Arm yourself with the knowledge you need to help your teen make informed choices and share the experience of buying and financing a teen car.