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Buying your teenager’s first car? We’ve got advice from budgeting to financing.
So, the time has come for your teen to get their first car. It’s a big milestone in any household.
Driving introduces a new level of freedom — and responsibility. While your child is likely excited (and maybe a little nervous) to get their first set of wheels out on the road, they probably need some help with the car buying process. On top of that, you probably have your own concerns about what model they should drive and how much it should cost.
Don’t worry, we’ve outlined a five-step process for how to buy your teenager’s first car and everything to consider along the way.
Step 1: Budgeting for Your Teen’s First Car
Buying your teen’s first car is a prime opportunity to teach them about the importance of personal finance, particularly budgeting. It’s an essential life responsibility that often gets overlooked during our younger years.
Your teen’s car budget depends on several factors. For starters, who’s paying for the vehicle — and how?
Chances are your teenager’s schedule is tied up with high school and extracurriculars, but they may have a part-time job. If so, you could help them outline a plan to save money for a car by setting aside some or all of their paychecks.
Depending on the timeline and your desire to assist with financing, this could either be the full amount or a downpayment. It’s also not uncommon for parents to match whatever their child saves.
If you don’t expect your teen to contribute, then you’ll have to decide how much you’re willing to spend. You may even decide to give them your own car and buy a new one for yourself.
There’s no hard-set rule for how much you and your teen should spend on their first car. Still, you don’t want to go overboard on price, but you also don’t want to sacrifice safety in the name of a “good deal.” It’s a delicate balance.
Just because it’s their first car doesn’t mean it needs to be their most expensive one, which is why many parents opt for used cars. Based on that approach, anywhere from $5,000 to $20,000 is generally recommended. For instance, Kelley Blue Book compiled a list of best cars for teens under $20,000.
However, if you and your teen are set on buying brand new, Consumer Reports’ list of Best New Cars For Teens ranges between $20,000 and $40,000.
If you and your teen have already saved for this financial milestone, you may have enough money set aside for an all-cash purchase. This allows you to sidestep a car loan and the added cost of interest.
Of course, everyone’s financial situation is different. It’s okay if you and your teen need to apply for a loan. This approach has its perks too. Most teens don’t have a credit history. You may want to help them build their credit score (and take advantage of low interest rates) by taking the traditional auto loan route.
That said, unless your child is 18, they can’t take out a loan by themself. Even if they are of age, they may not have a good enough credit score yet (if they have one at all). In either case, you may have to cosign your child’s auto loan.
Other costs to consider
Cars are big purchases, but the financial hit doesn’t stop when you drive off the lot. So, it’s important to teach your child about the ongoing costs of auto ownership — such as car insurance, taxes (can’t forget about Uncle Sam), maintenance costs, and potential repairs in the event of an accident or mishap. That doesn’t even include variable costs like gas (or electricity) and parking.
Keep in mind that teens are already prone to higher insurance premiums. When they’re behind the wheel of a sporty model with high horsepower, insurance rates tend to increase.
Step 2: Listing Your Needs and Preferences
Not all makes and models would be ideal for a teen’s first car. That doesn’t mean they can’t have any say in the selection, but certain features should take priority.
So, with your budget in place, you and your teen can create a list of needs and preferences, which will help guide you through the car selection process. Here are a few things to consider for your teen’s first car.
Safety is paramount when it comes to buying a car, especially for new drivers. As you’d expect, 16-17-year-old drivers have the highest accident rates of any age demographic, according to the Insurance Institute for Highway Safety (IIHS).
We don’t mean to scare you, but that’s why it’s important to find a vehicle with high safety ratings and plenty of safety features, such as anti-lock brakes and backup cameras.
Consider how your teen will use their new vehicle. Do they have a job that could require extra storage space? Will they help transport younger siblings to and from school?
Although fun to drive, two-door mustangs aren’t exactly accommodating for multi-person travel. (Speaking from experience.)
And don’t forget about fuel economy — or battery range if you’re thinking of an electric vehicle.
While your teen’s first ride will always hold sentimental value, that doesn’t mean it’ll hold its dollar value. There’s a reason older cars are typically worth less — most cars depreciate. The rare exceptions are vintage cars and low-supply sports cars. But certain makes and models depreciate quicker than others.
For instance, Jeeps tend to hold their value well. According to an iSeeCars study, the Jeep Wrangler (9.2%) and Jeep Wrangler Unlimited (10.5%) had the lowest average five-year depreciation rate of all small and midsize SUVs, respectively.
Luxury and electric cars, on the other hand, don’t hold their value nearly as well. For example, BMW accounted for 4 of the 10 highest-depreciating cars.
If you and your teen want to maximize resale value, consider car makes and models that tend to depreciate slowly.
Step 3: Shop Around for the Right Car
We’ve finally made it to the fun part. You’ve created a priority list of features and, hopefully, determined the type of car you want to pursue within your budget (e.g., a used four-door sedan under $15,000). Now, it’s time to shop around for the right car.
Best cars for teen drivers
There are plenty of appropriate vehicles for you and your teen to browse. To guide you in the right direction, you can lean on curated lists of low-cost, high-quality vehicles that emphasize safety and practicality. In addition to the ones we’ve already mentioned, the IIHS and Consumer Reports also compiled a list of safe and affordable vehicles for first-time drivers.
Play the field
Depending on where you live, you may only have so many car dealerships in your area (and, therefore, options). That can be a limiting factor, however, you can also explore online platforms like Carvana and CarMax, as well as private sellers.
You can use sites like Kelley Blue Book and Edmunds to gauge market values too. While you aren’t guaranteed to find an exact match at the listed price, it gives you a good reference point. Plus, it’ll come in handy during negotiations.
Step 4: Don’t Forget To Inspect and Test Drive
You don’t want to make the mistake of driving off the lot in a lemon. Make sure you thoroughly inspect any car you’re considering. Look out for scratches and dents as well as functional problems (e.g., a broken AC). Any defects you find could be leveraged during the negotiation stage.
Drive before you buy
A car may look like it’s in pristine condition, but that doesn’t mean it runs like it is. If you’re serious about a particular vehicle — especially used models — take it for a spin. Try to test it on the highway too. Listen for any suspicious sounds or vibrations.
Use an independent mechanic
While it may seem like an extra hoop to jump through, enlist an independent mechanic to inspect any used vehicle before making a purchase. They may uncover issues and save you from overpaying. If the seller is hesitant to let a mechanic take a look — or refers you to “their guy,” that’s a red flag.
Step 5: Negotiate Like a Pro
You’ve narrowed your sights on a car. It meets your needs, and it’s within your budget. It’s time to get down to brass tacks and negotiate.
Buying a new car is probably your teen’s first foray into haggling. So, it’s a good time to teach them about salesmanship.
That purchase price has room to spare
You can start by explaining the difference between an auto manufacturer and a dealership. Why does this matter? Because it’s the reason why car prices are negotiable in the first place.
There’s a common misconception that car dealerships are merely extensions of the auto brands they sell. That’s not true. Most dealerships are franchised, meaning an individual or consortium of investors built or purchased the lot and partnered with one or more automakers.
The relationship is pretty simple — the dealer buys its inventory from their affiliated automakers and then they slap a higher sticker price on the window and profit on the sale.
How much profit? Anywhere from $2,000 to $5,000 depending on the vehicle. For instance, AutoNation, a dealership conglomerate, averaged $2,044 and $4,579 of gross profit from used car and new car sales, respectively, in 2021.
So, long story short, you can negotiate the purchase price down, and the dealer will still make a profit on the car.
Be mindful of persuasion techniques
Not all car salespeople are sleazy con artists with their eyes on your pockets. Even so, be wary of common persuasion tactics to ensure you aren’t exploited. That may include time-sensitive deals or urges to purchase because other prospective buyers have had their eyes on your car.
Similarly, keep an eye out for unwanted extras. Salespeople are incentivized to sell add-ons to juicen their commission, such as a GAP waiver or vehicle service contract. You may decide that you want these added protections, but make sure it’s your choice — not something a salesperson slips in unnoticed.
One Last Tip: Read the Entire Contract
You and your teen are nearing the finish line. All that’s left is to sign on the dotted line. Now is a good time to reinforce the idea of reading anything you sign.
You and your teen should thoroughly read all paperwork. If you purchased via a dealer or private seller, make sure everything aligns with what you’ve agreed to. If you’re buying online, there may not have been any negotiating, but it’s still important to watch out for hidden fees and clauses.