Teach Your Teen How To Make a Budget
Discuss saving for a car and savings goals in general with your teenager as soon as they begin high school. Saving for a larger, more expensive item like a car might take them months or even years. Help your teen create a budget if they have a steady job. Help them and make sure they put their earnings into a savings account at a federally insured bank or credit union. This account can be dedicated to their vehicle purchase, or it can be used to save for multiple financial goals. Talk to them about their interests and what employment opportunities might be available if your teen doesn’t have a job yet. Teens of all ages may be able to make money delivering food, babysitting, mowing lawns, lifeguarding, or tutoring.
Consider Whether To Buy New or Used
Teens tend to drive older cars. Older cars generally have a lower upfront cost, but your teenager might decide they’d like to wait a little longer and save up for a newer car. This might save them insurance and maintenance costs in the long run. You can discuss the pros and cons of new and used cars with your teen and decide together what the right type of car might be.
New Cars
New cars typically offer lower initial maintenance costs, as well as more advanced safety and technology features. A new car will often come with a warranty, which should help your teenager cover the cost of any car repairs or part replacements they might need. New vehicles are also easier to customize. The greatest downside to buying a new car is that it’s more expensive than a used model. The value of a new car will also depreciate as soon as you drive it off the lot.
Used Cars
Used cars are generally less expensive than new vehicles, and a car that’s a few years old can be a great deal because you’re letting someone else take the immediate depreciation hit. But your teen may end up with a less reliable vehicle that needs frequent repairs if the car is significantly older. They may also have to settle for a car that doesn’t have the exact features they’d like.
Paying With Saved Funds
Your teenager may be able to pay for their car in cash instead of taking out a loan or leasing a car if they’re able to save enough money. Every person’s situation is different, but one common recommendation is to keep the cost of your teen’s first car below $10,000. Your teen will most likely be making minimum wage, so it might take them quite a long time to save up for a safe and functional car. You may want to help your teen pay for the car by matching what they save if you can afford to do so. You might give them an additional $4,000 to put toward a new car if they’ve saved $4,000. This helps them afford a nicer car while developing healthy financial habits.
Taking Out a Loan
Car loans are offered by banks, credit unions, online lenders, and auto finance companies. They’re only available to drivers who are at least 18 years old. Most teenagers have limited credit histories at this age, but they can still shop around and look for lenders who might be willing to offer car loans to those with limited credit or no credit. They can ask you or another family member to co-sign their loan if they can’t find loans at all, or if they can’t find loans at a reasonable rate.
Leasing
Your adult teen can enjoy the latest features, a comprehensive warranty, and affordable monthly payment if they lease a car. Most leases come with mileage restrictions, however, so this option might make the most sense if they tend to stay local and don’t drive very far. The downside of leasing is that your teenager may have to pay a penalty if they decide to terminate their lease early. They may also face penalties for wear and tear.
Additional Costs When Buying a Car
The average cost of owning and driving a new car in 2021 was $9,666, according to AAA. That includes depreciation, fuel, insurance, taxes, maintenance, and the interest you paid on your loan, but not the cost of the car itself. You’ll want to make sure your teenager knows about all the extra costs that come with owning a car so you can help them prepare to pay for ongoing expenses, including:
Car insuranceVehicle maintenance and repairs GasParking
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