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Financial Literacy - Feature Article

StageofLife.com - Getting Your First Car Loan

Top 5 Tips for Getting Your First Car Loan

by Lauren Podolsky, StageofLife.com Financial Wellness & Literacy Editor
For teens, college students AND their parents...

Tired of borrowing your parents’ car and ready for your own set of wheels?  If you are a teen and hold a steady, part-time job, you may be able put the pedal to the metal by obtaining a car loan, with the co-signature of an eligible adult.  If you are already on your own, but don’t think you have the financial history established to take on such lofty lending; there are many options that will help you build your credit in no time!

Here are a few helpful tips on what to keep in mind and best practices when it comes to car loans for teens.

1. Save up for a down payment – Ideally, you should be able to put down 10 – 20% of the cost of the vehicle upon buying.  The more the better of course, but having a solid amount of cash upfront ensures a lower finance amount.  Remember, the amount you finance will always end up costing you more in the end when interest is a factor. Additionally, down payments serve as a preventative measure against upside down car loans and negative equity, meaning you’ll be less likely to find yourself trapped with a vehicle that’s worth less than you owe.

2.  Shop for affordability NOT looks - As much as we all want a shiny new set of wheels, it’s often impractical to purchase a new car, especially if you are a student or teenager.  A vehicle is a depreciating asset, meaning it looses its value before we can gain profitability, which can put you in a disadvantageous position financially.  A pre-owned car will be easier to finance and insure and will usually hold its value longer.  Keep in mind, when shopping for a used car; reliability should be your main concern.

3. Demonstrate consistent income - Lenders want to see that you have reliable income coming in before they loan you a large amount of money. A full time job is best, but not mandatory.  Most experts agree that payments should not exceed 60% of your take-home pay, but others will argue that a more conservative long-term plan can be as low as 20%.  Try to aim somewhere in the middle of the two.

4. Build your credit the smart way – If you are of age and have the financial know-how to do so, think about applying for a low limit credit card. Most financial institutions offer lines of credit designed for students with a low cash limit.  This is your best bet to begin.  Make a few purchases on the card each month that you know you can pay off, and when the bill comes at the end of the month, PAY IT OFF IN FULL!  This is the best and fastest way to build your credit history, but it can be too tempting for some.  The key is only making purchases on your card that you know you can afford.  If you have the discipline, this could be a good option for you.

5. Enlist a responsible co-singer - It’s not such a bad idea to ask a responsible and trustworthy adult that has good credit history to be listed as a co-borrower on the loan the first time around.  This also helps build your own credit history so that the next time you are in need of financing, you should have enough creditability to do so on your own, so long as you proved good financial responsibility. If you do enlist in a co-signer remember this; if you don’t make your payments on time, you are not only affecting your own financial history, you are also compromising their credit history as well. 

If you have other tips we should add to this list, or any questions or comments, please Contact Us

Read more Financial Literacy articles from StageofLife.com


Lauren Podolsky - StageofLife.com Financial LiteracyAbout Lauren Podolsky: With over 10 years as a blogger and Financial Literacy adviser, Lauren lends her money tips and financial Q&A insights here on Stage of Life each and every month. For more healthy tips, recipes and advice, check out Lauren's personal site at www.saywhatyouneedtosayblog.com where she shares her love of food, staying fit and living a healthy and balanced life.

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