Let’s face it. Most of us are simply not in the position to just go out and buy any car we want with cash money.
So what should you do? If you are a teenager and you want/need a car should you borrow money to buy a car? Of course, the answer depends on who you ask. Some would tell you to save your money and only pay cash for a car and other would say to finance whatever car you want!
I was very fortunate to have family members who helped me get my first car. My grandparents and my dad were incredibly generous and I am grateful. Many families, however, are just not able to help in that way and it is left up to a teen to come up with a way to get transportation.
I had the privilege of speaking with Gail Lewis who is the Director of Consumer Lending with my sponsor 121 Financial Credit Union. She works directly with teens and helps them with all things related to personal finance. I am grateful for her time because she helped me understand some of the issues that teens have to think about when applying for a loan.
1 – If you are 16 and have a part time job or other means of income then your parents can apply for a car loan for you. Most credit unions are not going to allow you to sign a contract as a minor. (You have to be 18 or older to apply for a loan on your own.) This will help build your credit but it is a risk for your parents because if you don’t make the payments then they have to pay them for you. This is what a lot of families do. The teen pays the payments but the parents sign for the loan.
2 – If you are 18 but don’t have much in the way of a credit history then you can apply for a loan but you might still need someone to co-sign the loan with you. Mrs. Lewis said that if you will go into your local credit union they will help you find out your credit score and help you build up your credit so that you can qualify for a loan. It might take a little time but it can be done and they want to help you!
3 – One good guideline for borrowing money on a car is to not make payments for more than two years. If you can’t afford to pay off the car in two years then you need to find a less expensive car if at all possible.
4 – You will need to save up so you will have a downpayment. Some places will require at least a 20% down payment but you will have to check with your local credit union to see what they require. It could be more or less.
5 – Be informed and prepared. If you know that you want to buy a car sometime in the future and may need a loan go in NOW and talk to the people at your local credit union and see what you need to do. If you have all of the information you can set specific goals, save your money, and not be unpleasantly surprised when you walk in unannounced expecting them to give you some money for a car!
Many of us forget to budget for the regular maintenance of owning a car. A few other things to remember are:
Have you budgeted enough money every week for gas?
Are you setting aside a little bit of money each week for things like regular oil changes?
Have you started saving for the bigger maintenance issues like new tires or brakes? What about if something breaks on the car and you need to have something fixed?
BONUS TIP: I just read about the difference between getting a loan directly from the car dealership instead of going to a bank or credit union. BE CAREFUL! Car dealerships make a lot of money by financing the loans themselves and they will probably charge you extra interest and fees in the loan. Always take the time to go to your credit union first for the loan as they are the most likely to have the very lowest interest rates you can find. You can get pre-approved for the amount they are willing to lend you before you even get to the first dealership!
Obviously it would be best to pay cash for a car if at all possible, when it isn’t just be smart about borrowing money. Borrow as little as possible and shop around for the lowest interest rate. Look over the paperwork carefully and make sure that you aren’t paying extra or unnecessary fees.
How did you get or how do you plan to get your first car? Save up the entire amount? Borrow from your parents or from a credit union?
My credit union is 121 Financial Credit Union. If you don’t live in the area then be sure to check out whatever credit union is close to you!