Whether you just got your license or need a ride for an after-school job, consider these common costs before buying your first car
Buying your first car: What every teen should know
Buying your first car is an exciting milestone. It’s also a big financial decision—and a chance to gain some real-life money skills. Follow these tips to find your first set of wheels—and to understand all the costs and considerations.
Set your budget
Determine your budget. Knowing how much you can spend will help you focus on cars you can actually afford. You may be planning to pay for the vehicle outright with money you’ve already saved up.
Be sure to factor in additional costs like upfront fees for the registration, inspection and license plate. Then there are ongoing expenses like insurance, maintenance and gas. Some states charge a yearly tax for owning the car, too.
If you’re planning to finance the car with a loan co-signed by a parent or guardian, your monthly payments should also be included in your budget. Your specific costs will depend on many things (the car you choose, where you live, your insurance rate, how much you drive, etc.).
Get preapproved for an auto loan before you even begin car shopping. Knowing your approved interest rate and the amount you can borrow ahead of time will help you stay on budget.
Find the right car
Now for the fun part. Start researching online to see what kind of vehicle you can get for your budget.
As a new driver, you’ll have to consider car safety and reliability. As a general rule, bigger cars are often safer than smaller ones. A midsize sedan might withstand a crash better than a compact vehicle, and its low center of gravity generally makes it less likely to roll over. Also, look for cars that don’t highlight horsepower. Cars with smaller, more practical engines and drive trains (and hybrid or electric cars, too) can encourage safer driving and also save you money on insurance and fuel.
You’ll also need to make certain trade-offs to find the right combination of features at the right price. One obvious option to consider: Will you buy new or used? While new cars are more expensive, of course, they may offer safety features that aren’t available in older vehicles, but are especially valuable to new drivers, from backup cameras to driver-assist technologies such as automatic braking. You can also consider a certified pre-owned vehicle. It may cost more than other used vehicles but may come with a limited warranty and, potentially, lower insurance costs.
Paying for your vehicle
If you’re under 18, most states won’t let you be the actual owner, so you’ll need a parent or other grown-up to own the vehicle. Once you reach the right age, they can transfer the title to you. Consider these common payment options to help get you in the driver’s seat:
Buy it outright:
You can pay for the entire cost of the car with money you’ve saved or with help from a relative.
Get a loan:
If you cannot afford the entire cost of the car, you can get a loan. Legally, only someone over 18 can get a loan and, even if you are 18 or older, the lender will probably ask for your parent or another adult to co-sign. However, you’ll need to make the payments every month, or it will have a negative impact on your credit—and on your co-signer’s credit, too.
When you lease a car, you don’t technically own it—you pay for the right to drive it. This can be an affordable way to get a newer car. However, the lease will limit the miles you’re allowed to drive. (If you go over, you’ll pay extra.) And you must return the car when the lease is done (or you can buy it then). The dealer will also charge you for any damage.