- 1 Buying a Car for Your Teen: What Kind and Financing
Did you know that 44 % of American adults rely on a loan to finance their vehicles?
Are you wondering, “what car should I buy for my teen?”
Not to worry! In this guide, we’ll go over what to buy and how to finance a vehicle.
Want to learn more?
Keep reading to find out.
Buying a Car for Your Teen: What Kind and Financing
What Car Should I Buy for My Teen?
When looking for a car for your young person, make sure to steer clear from high horsepower.
You don’t want to give them a vehicle that will tempt them to drive dangerously.
Heavier and bigger vehicles protect the driver better in an accident.
To help a driver keep control of the car, look for electronic stability control (ESC).
ESC will help your teen driver on slippery and curvy roads.
You want to look for a make that has top safety ratings.
Help Your Teen Build Credit
With limited finances, teens sometimes get desperate to find a way to finance their cars.
Avoid problem financing.
Most teens under 18 sign an informal family loan arrangement with their parents.
The car’s registered in the parent’s name.
When your teen turns 18, you can give them ownership of the vehicle after leasing it and sell it to them
If you financed the vehicle, your teen could get a car loan from a bank.
Without a credit history, you will have to cosign this loan.
It is an excellent opportunity for your son or daughter to build credit.
Get a Loan
Most people don’t have the amount to buy a vehicle and need to get a loan.
If you plan to apply for a loan to finance your teen’s car, you’ll want to consider a few things.
Know how much the annual percentage rate is and how long your loan term will last.
Interest rates are higher for a used car compared to a new one.
Shop around with your teen to find the best rate.
Try and get a car loan that doesn’t have a prepayment penalty.
If your teen saves up enough money to pay it off early, you won’t get penalized.
Shop Around for Interest Rates
Don’t pick the first dealer you meet.
Make sure you compare interest rates from various lenders in your area.
Take your time with this process and make sure your teen goes with you.
By casting a wider net, you might find a better rate.
Different Types of Lenders
If you have strong credit, you can get a loan from a national or local bank.
They might still offer a loan to those with lower credit.
If you have a relationship with a specific bank, contact them first.
Are you a member of a local credit union?
You might get a better rate there.
There are online auto loan companies you can research.
These companies have specific borrowers they will accept.
If you have poor credit, don’t worry, you can still get a loan.
Look into car finance loans for bad credit.
Getting a Lease
You can also lease a car instead of taking out a loan.
Leasing a vehicle is another popular way to finance an automobile.
Include your teen in this process, so they learn and ask questions.
When leasing, you only pay for a part of the cost of the vehicle.
You are paying to use the car, but you aren’t paying to own the vehicle.
Explain the difference to your teen.
You might have to provide a down payment.
Sales tax is included in your installment every month.
Sometimes you’ll need to pay for a security deposit and lease-related fees.
Payments every month are lower than buying a used car.
But, you won’t gain any equity in the vehicle.
Talk it over with your teen.
The drawback of leasing is you’ll have to stay aware of how many miles you drive.
Your teen will also need to take good care of the vehicle.
You’ll get charged for any damage or wear and tear.
Watch out for Advice from a Dealer
When you go with your teen to a dealership, help them throughout the process.
Some teens take a dealer’s advice about trade-in and financing options.
If your teen has a trade-in but is paying a loan, they might have a balance larger than the worth of the car.
Dealers try to influence the teen by saying they’ll pay off the old loan and add it to a new vehicle loan.
When this cycle’s repeated, the cost increases over time.
You don’t want your teen getting into a period of managing money and buying cars.
This can lead to credit problems and loan defaults that could affect their future.
Calculate the Cost of a Loan
When deciding on a price range for a vehicle, work out how much your teen can afford a month.
You’ll want to know the interest rate, loan amount, and the term they have to pay it off.
Sit down with your teen to organize the finances.
Make sure they know how much it will cost a month to keep their vehicle running.
Write down the cost of maintenance, annual fees, repairs, and auto insurance.
By including your teen in this process, they can learn more about managing their finances.
Want to Learn More?
We hope this guide answered the question, “what car should I buy for my teen?”
Make sure you sit down with your teen and explain the costs.
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