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Can a teenager buy their own car?
Avoid sales traps and watch for hidden costs when shopping for a new ride.
Most teenagers have little or no credit history, which can make getting a car loan challenging. Plus, credit blunders — like making late payments or no payments at all — can take a toll on a credit score for years.
So, can a teenager buy their own car? Absolutely. But you'll want to watch for sales pitfalls and hidden costs before you sign the dotted line.
Can a teenager buy their own car?
Yes — but you’ll need to be at least 18 years old, which is the legal age to take out a loan in most states. Even if you are old enough, you’ll have a difficult time qualifying if you haven’t yet built up your credit history or have red marks on your credit report. In that case, you’ll likely need to bring on a creditworthy cosigner to share in the responsibility of paying off the loan.
4 ways teens can finance a car
There are several ways teens can finance a car, including:
- Crowdfunding. Crowdfunding brings together a group of individuals who donate to support a charity, fund a project or even help a teenager buy a car. Anyone can create a page and promote it over social media to get donations from strangers, friends and family. Raising $5,000 or more for a car from one source can be tough — but getting $50 from a hundred sources may be much easier.
- Get a cosigner. A person with little or no credit may have a hard time getting a loan, but a cosigner with good to excellent credit can step in and help. Many banks accept cosigners on car loans, especially for existing account holders. Keep in mind that even with a cosigner, most car loans require the borrower to be at least 18 years old.
- Save up over time. If a vehicle is a must-have, saving a few dollars out of each paycheck can add up. A combined approach between parents and teens can make this an option that doubles as a valuable teaching experience.
- Online car loans. Auto Credit Express and SuperMoney are online marketplaces that connect borrowers with lenders — some of which work with people that have no credit, bad credit or have gone through bankruptcy. Rates vary, but can be high, so it pays to shop around to get the best deal.
What to watch out for when shopping for a car loan
When you’ve found that perfect car, it may be tempting to grab the first loan that comes around — but it might not be the best loan. Avoid these pitfalls when shopping:
- Ignoring the rates and fees outlined in your contract. Some dealerships offer low-interest loans up front, then slip in higher rates and fees when it comes time to sign the contract. Look out for exorbitant fees for late payments, penalties for prepayment or adjustable rates, which can mean much higher payments down the road as interest rates rise.
- Packing payments. Some dealers will get borrowers to agree to an inflated monthly payment, then “pack” the loan with products like paint protection packages, extended warranties or anti-theft devices that they claim are either free or discounted.
- Opting for a loan extension. Dealers will often extend a loan to six or seven years. While this will lower the monthly payment, you’ll end paying on the loan a lot longer — which means lots of added interest. You may even end up owing more than the car is worth.
Costs to look out for when taking out a car loan
When a car loan includes more costs than you expected, you may be paying too much. Look out for these added — and sometimes hidden — costs.
- Documentation fees. Aside from paying taxes and licencing costs, you might be on the hook for registration and documentation fees, which can easily range from $75 to more than $800 in some states. Before signing, ask the dealership to give you an “out-the-door” price that factors in these extra expenses.
- Dealer financing fees. Dealer financing can often include an added dealer fee on top of the low quoted interest rate for an auto loan. Ask for the APR — interest rate plus taxes and fees — instead of just the base interest rate to make sure you know exactly what you're paying for.
- Prepayment penalties. Some lenders add in a hidden fee called a prepayment penalty for paying off your loan early. Have your lender point this out if such a fee exists, and try to negotiate it down if you can.
- GAP insurance. This is insurance that pays the difference between what is owed on your car and what the insurance company will pay if your car is stolen or totaled. This is optional, so don’t let your dealership or lender tell you differently. If you do decide to purchase a policy, think twice before bundling the cost with your loan, since it will add to your interest payment each month.
- Extended warranties. Also called service contracts, these warranties cover many of the more expensive costs of repairing your vehicle not covered by your manufacturer’s warranty. However, it can get expensive. And the majority of customers don’t end up using it, so consider whether it’s worth it before buying.
6 car-buying tips for teens
There's no undo button when buying a car. Make sure you follow these tips to get the best deal on a sweet ride.
- Consider used. Find the best vehicle at the best price that meets your immediate needs — and that may mean buying a used car.
- Safety first. Used or new, check safety ratings on the National Highway Traffic Safety Administration website to ensure you’re buying a safe ride. Or, check out our list of the safest cars in the US.
- Test drive it. Before buying a vehicle, take the time to do a test drive. Not all vehicles fit all people, and things like blind spots, roominess and comfort should all be taken into consideration.
- Check maintenance records. If you're buying used, look at the maintenance records to see if the vehicle was well maintained.
- Check mileage. That shiny red convertible may look good — but you may want to look at another car if it's already at 200,000 miles. If it has fewer than 100,000 miles on it, the original manufacturer warranty may still apply.
Compare car loans you can apply for today
Getting a car loan can set the stage for establishing a credit history. And keeping up with repayments will pave the way to a high credit score, which will come in handy when you’re looking to buy your first home or qualify for a competitive credit card.
Educate yourself before visiting a dealership so you can get the best deal possible on a car. To help, you can check out our guide to getting a car loan.
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