The inevitable happens – your teen gets their driver’s license, and they immediately ask to take your car out for a spin on their own. You may humor them at first, enjoying letting them run local errands or pick up takeout, but eventually, handing over the keys to your car may get old.
Whether you simply grow tired of lending your teen your car, their excitement to drive your “mom” or “dad” car wanes, or you find that it’d be helpful for them to drive themselves or their younger siblings to school or other commitments, you may be wondering if it’s a good idea to help your teen buy a car.
While you’ll have to determine on your own if your teen is ready for the responsibility of having a car to freely use as they’d wish, there are some benefits to helping them get a ride of their own. One of those benefits is the opportunity to turn the experience into a hands-on lesson in financial responsibility.
The cost of a car doesn’t stop when you drive it off the lot. Make sure your teen is aware of the additional costs of car ownership, such as:
Once you’ve helped your teen identify all the costs of having a car, help them put together a budget to make sure they can afford it. Consider what income they have available, such as paychecks from a part-time job or financial support you’re willing to provide them. Then consider any other expenses they’re responsible for, such as a cell phone bill or fees for school clubs.
To help them learn the concepts of budgeting, you can use our free budgeting worksheet.
Going through the above exercise can help you and your child understand how much money they have available for monthly car payments. However, there’s more to consider than just whether or not they can afford monthly payments on their own, and it all boils down to credit.
Buying a car typically requires a car loan, which teenagers can’t get on their own unless they’re 18 or older, as well as consistent income to repay the loan. Use this opportunity to explain how credit works and teach your teen how they’ll need to establish credit and have reliable income to get approved for loans on their own in the future.
If you have good credit yourself (co-applicants must be creditworthy, too) and are comfortable doing so, you can consider co-signing on an auto loan for your teen if they’re old enough. Explain to them how this can help them get approved for a loan and ultimately establish good credit if payments are made on time each month.
Before you co-sign on a car, however, you’ll want to make sure your teen is able to make all the payments on time. If you co-sign, you’re on the hook for payments, as well. This means that if your teen doesn’t pay on time, you’ll be required to make the payments. If payments are missed, you’d be the one held responsible.
You may want to review some of our free resources to brush up on the subject before you have the talk with your teen.
If you’re unsure about co-signing for a loan or your teen isn’t old enough, you can consider taking an auto loan out in your own name. You can then make an agreement with your child for them to pay you directly for their portion (whether it’s all or some) of the payment each month. This allows your child to have some skin in the game, but gives you control over whether payments are made on time, posing less risk to your credit.
Once you’ve come to a comfortable decision regarding taking out a loan for your teen’s car, involve them in shopping around for a car loan. Even if you’re planning to take out the loan in your own name, this is a useful exercise for them. It can teach them concepts such as:
Talk to your child about the importance of comparing loan offers and how getting preapproved for a car loan by your preferred financial institution can help you negotiate at the dealership.
If it’s been a while since you’ve shopped for a new car, check out our free guide to auto buying.
When you’re shopping around for loans, you’ll likely find that the competitive loan rates we offer are hard to beat. We have flexible loan terms and fast loan approvals for new and used cars. And with our preapproval process, you can apply once and be approved for up to 60 days, giving you the time you need to find the car that works best for you.
Learn more about our auto loans today.