by Julie Jaggernath
Have a teen who is looking at buying their first car at 17 or 16 years old? A driver’s license is a major milestone for any teenager. It’s no wonder that having a vehicle of their own becomes their next big goal! Maybe they want more freedom and independence, convenience, or just want to impress their friends. Financially speaking, however, there’s a lot to consider in making such an important decision. Before hitting the open road, your teen needs to find the best route to get this new car. Here are some things to consider as you talk to them about their goal.
Explore this Teen Budgeting Series:
- 3 Tips to Help Teens Learn Money Management Skills
- How Do Part-Time Jobs Teach Teens to Budget?
- Use Back to School Shopping as a Financial Literacy Lesson
- How Kids Can Spend Gift Money Wisely
- What to Do If Your Teen Wants a Cell Phone
- What Teens Should Know Before Buying Their First Car - You Are Here
Why Does Your Teen Want to Buy Their First Car?
There are many reasons why a teenager might want to buy their first car. However, you might need to help them get their priorities straight. For example, if a teen’s priority is to impress their friends, that can lead to unwise financial decisions. They might feel pressured to buy a brand new car even though a good used car would suffice. New vehicles depreciate in value significantly in the first year or two – can your teen afford to lose that much money? And a vehicle in general is a depreciating asset. It can also feel impressive to splurge on a new sound system, shiny rims, or a customized interior. However, those extras won’t look so cool parked in the driveway if your teen can’t afford gas or insurance to get from A to B.
What is the Best First Car for a Teenager?
The best first car for a teenager to buy is the one they can truly afford. Making smart financial decisions doesn’t require killing your teen’s first car dream. Following a dream is great, but taking their brain with them is even better. These first bigger financial decisions that teens make will impact the first decade – or more, of their young adult years. It’s simply about tempering expectations and helping them use the money they have most effectively. Their goal, after all, is to enjoy their new ride, not burden their financial future with stress and worries about how much debt they got themselves into.
Finances of Buying First Car as a Teenager
If your teenager is a 17-year old or under, they cannot legally sign for a car loan on their own. So how will they pay for the car initially? Do they have cash saved up, or will you lend them the money? Many teens ask their parents to co-sign a loan for them, but this has its own drawbacks. You’ll be 100% responsible for repaying the loan and on the hook if your child comes up short. Any problems will affect your credit rating and ability to get loans for yourself.
One thing your teen might not yet realize is that even without a loan, paying for a car doesn’t end with getting keys from the dealership. Insurance for new drivers can be very expensive, and might be higher on certain vehicles (e.g. imports and trucks or SUVs with 4-wheel drive). Ask your teen to find out what their insurance costs would be for the car they’d like to buy. Depending on the car’s age, maintenance costs might also be as high as triple the costs of fuel. Your teen will need to save money on a monthly basis to maintain and repair their car. Do they have a budget to know what they can afford?
How to Test Drive Owning a Car Without Actually Buying One
Encourage your teen to test-drive owning a car – financially speaking. Set the money they would be spending on a loan, insurance, and maintenance aside for 6 months in a separate savings account. They will find out very quickly if they can maintain their current lifestyle while also paying the additional vehicle costs. If they are allowed to borrow your car, have them top up the tank or pay you for the fuel they use. When your car needs repairs or maintenance, show them the bills or have them contribute to the costs in proportion to how much they drive your vehicle. A driver’s license is a big responsibility, but so is owning a car and keeping it in safe repair. Help your teen be ready for success on as well as off the road!
You have reached the end of the Teen Budgeting Series. To start from the beginning, go to: 3 Tips to Help Teens Learn Money Management Skills