What Teens (and Adults) Need to Know About Buying a Car

With three kids now in their 20s, I have plenty of experience buying cars for a teenager. Here's how to navigate the first-time car buying process, using the advice of Ivan Drury, Edmunds' director of research.

Before To begin the search, you have to manage expectations, especially if money is tight. So no, they can't roll out a sports car, a luxury vehicle, or something new off the assembly line.

“I would say, first of all, you have to moderate your child's enthusiasm,” Drury said.

Of course, your child should have a say, but if you have to provide the bulk of the money or take out a loan in his or her name, you should have veto power.

Prepare yourself for extreme shock.

There is a The winning trio when buying a car is driving up prices right now: inflation, rising insurance premiums and rising auto loan rates.

“While inventory has improved, leading to some discounts, vehicle prices remain elevated and high borrowing costs have only made purchasing a new vehicle more difficult,” Edmunds said in its latest trends report.

In the second quarter, the average amount financed for a new car was $40,873. This amount came with a term of 69 months, a down payment of $6,579 and an average interest rate of 7.3 percent.

The average monthly payment hit a record $740, up from $735 in the previous quarter and $733 a year ago. The share of borrowers with loan payments of The monthly price of $1,000 or more for a new car was 17.8% in the second quarter of 2024, just below the record of 17.9% set by the end of 2023, according to Edmunds.

The average financing amount for a used vehicle was $28,166, with a monthly payment of $552. The average interest rate was 11.5%, with a down payment of $4,140.

Set a budget before looking for a car and stick to it. It is possible to find a reliable used car.

Being a parent means putting a stop to what is financially unreasonable, no matter how much your child pleads.

“There are vehicles available at all price points,” Drury said.

Here's how my husband and I found a $2,000 car for our youngest.

We have a great mechanic who buys wrecked vehicles and fixes them up for resale. Most of his purchases simply require body work. We put an offer on a 2000 Toyota Camry that he was fixing up and our daughter ended up driving it for about six years. She never left it stranded on the side of the road.

Look for private sales in addition to dealership sales. With a little online research, starting with Edmunds and other car sales sites, you can find a good deal on a reliable used car.

But what about all the safety features in new cars, you might ask?

“If it's fairly new, say built in the last 20 years, it will be safe enough,” Drury said.

And you might not want your teenager to become too dependent on new technology and become a less careful driver, he said.

If you can, pay cash. And yes, that may mean a much older car, or a second or third choice make or model. or color.

If you decide to finance the purchase, consider the long-term impact on you and your teen.

Sure, they promise to repay the loan from their income. But what if they lose their jobs? What if working and going to school become too much and they have to stop?

You need to be able to afford the monthly payments, so budget for this possibility. Don't let the excitement of this milestone obscure the reality of your family's financial situation.

If your child is an adult, they may be able to get a loan if you are a co-signer. I wouldn't do it, but if you decide it's the only way, understand what it means to be a co-signer.

You are not a standby borrower. You are responsible for the loan – all of it. Any late or non-payment may show up on your credit reports. And because the loan counts toward your total debt-to-income ratio, it could lower your credit score and/or affect your borrowing capacity.

Ask your child to help you find a lender and to set the prices of loans; in fact, they should be the first to lead the process.

Check if any of you can get Financing through a credit union, which often offers lower rates than banks or dealerships. Use the National Credit Union Administration's locator to find local options.

Ask your child to compare insurance rates. This will also help to moderate his desire to buy a more expensive car.

“The cost of insurance is only going to go up, especially if the existing plan holders have a bad driving record,” Drury said. “Adding someone under 25 to the list is just adding fuel to the fire of insurance costs.”

According to the U.S. Centers for Disease Control and Prevention, teens ages 16 to 19 are at higher risk of motor vehicle crashes than any other age group.

According to Investopedia, adding a 16-year-old to an adult insurance policy costs an average of $250 per month.

The work is not yet finished.

Once your son or daughter has the vehicle, make sure the next step is consistent save for car maintenance and repairs.

Most importantly, use this process as a life lesson in shopping and making smart decisions, which may mean going for less than they have. to want.

If you want more timeless personal financial advice, order your copy of Money Milestones by Michelle Singletary.