For many teenagers, getting a driver’s license is a normal process. And as a parent, life can be a lot easier if your kids can drive themselves to school, work, or sports.
If you are a young adult considering buying a car, or a parent investing in a car for your child, it is important to understand how school loans for young people.
Car loans for teenagers and young adults are tricky and work differently than loans for adults. We’ll explain some of the most important aspects of car loans for young car buyers, including how much you can expect to spend.
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The Cost of a Car Loan for Teens
The most important thing to consider when getting a loan for a teenager is the price. You may need to borrow a large amount of money to cover the full cost of the car, and you will still need money in your budget to cover additional costs beyond your loan.
The monthly car insurance premium on a car driven by a young and inexperienced driver is usually higher because it is more risky. The price of insurance for young drivers around $2,000 per year, but the actual cost depends on certain factors, such as age, vehicle history, location, and insurance company.
Gas prices are constantly changing and vary widely depending on where you live. On average, however, you’ll need about $1,600 to cover gas costs for the year, based on typical driving habits. Before you buy a car, you should take a close look at how much your car is worth to determine how much you should pay. budget for gas.
Proper maintenance is required to keep a car in good condition, and it costs about $1,400 a year. This figure includes regular oil changes, tire changes, air changes, and more.
License and Fixed Fees
When you buy a car it includes the cost of getting a license, registering the car, and paying taxes. These costs are usually less than $900 per year.
Make a Budget
With expenses in mind, the next step is to create a budget. Consider the amount of income that the youth receives each month, and subtract all of the above costs plus any housing costs or other expenses that the youth must pay. What remains is the maximum amount that a teenager can put down in a monthly payment on a car. Ideally, though, you want to leave some wiggle room for expenses.
A teenager or a full-time college student often finds it difficult to get a car with all those limitations, which may be easier if parents can offer financial assistance. Whether it means splitting the month or having parents approve insurance or other expenses, sharing costs makes it easier for a full-time student or teenager to keep their car debt-free. to destroy their lives.
Start Building Money
A teenager may not have a perfect credit history, which can hinder their ability to get a suitable car loan. Most lenders do not offer loans to people who do not meet the credit requirements, such as those with no good credit or no credit history.
Before trying to get a car loan, a teenager may want to build up their credit by getting a credit card, making a few purchases, and paying off the balance each month. Getting approved for a credit card is easier than getting a car loan, and it’s best to build up credit at least a year before starting the loan. car sales.
Check Your Credit History
All reputable lenders, including banks or credit unions designated as mortgage lenders, will check your credit. To avoid any surprises, make sure you check your own credit score before trying to get a car loan.
Then you can find out how your credit score affects the amount of car loans you can finance. If you have good credit, you may be able to borrow more than if you have good or bad credit.
Benefits of Co-Signing
Financial decisions can be frustrating without any history, and many generations have to deal with this situation. Fortunately, a young person does not have to finance a loan alone. They can co-sign a car loan with their parents.
When a teen signs a car loan with a parent, the loan itself is still in the teen’s name along with the car. The lender has the assurance that the youth is not solely responsible for paying the loan, due to the parents’ income and history. also contributed. This can help secure a lower interest rate and allow the young person to borrow more money.
It is important for teenagers to understand that co-signing a loan puts both parties at risk if they do not make monthly payments on time. Although the loan and the car are in the name of the youth, the credit score of both parties will be affected by missing the loan.
Look for Buy-Here-Pay-Here Sales
An alternative to a traditional loan from a bank or credit union is financing through a buy-here-pay-here car dealership. These third party advertisers don’t care about credit scores, so they can appeal to young people without credit or bad credit. That’s the only benefit, however, especially if you’re looking to save on an annual discount or terms. flexible.
This type of customer usually has higher interest rates on loans than banks, and their cars may be below average or expensive. In addition, the reimbursement policies are enforced, and they offer little chance of missing money.
Director of Finance & Insurance
Elizabeth Rivelli is a freelance writer with over three years of experience covering personal finance and insurance. He has extensive knowledge of various insurance lines, including auto insurance and property insurance. His byline has been featured in several online financial publications, such as The Balance, Investopedia, Reviews.com, Forbes, and Bankrate.