Help Your Teen Afford the Right Car/ February 6th, 2016
It's essential to consider safety, affordability, and reliability when buying a teen's first car, according to William Van Tassel, Ph.D., manager of driver training operation for the American Automobile Association (AAA), Heathrow, Fla.
Van Tassel says parents should ask teens to prove they're ready for a driver's license through requirements such as maintaining good grades or completing household chores.
Teens also need to learn how much it costs to drive. Parents can start the process by telling teens the cost of gasoline, insurance, and repairs as they pay family bills. Ask the teen to help care for the vehicle she eventually will drive by regularly washing it, checking fluid levels, and keeping the maintenance log.
Aim for a series of short discussions to minimize resistance and allow teens to absorb each lesson.
"Start these talks half a year, at least, before a teen is actually eligible for a learner's permit," Van Tassel says.
Even after teens get a license, Van Tassel suggests waiting to buy a vehicle until it's truly needed.
Instead, set rules for the teen's use of the family vehicle, including when the teen can drive and who can ride along. This reinforces many state driver's license policies that limit teens' driving hours and the number of passengers in the vehicle.
It also gives parents time to temper the teens' expectations about buying a car.
Look for safetyVan Tassel says parents should insist that teens choose a safe vehicle, using information offered by websites such as AAA, the National Highway Traffic Safety Administration, and the Insurance Institute for Highway Safety. Van Tassel urges parents to look for vehicles with at least three safety features:
- Air bags, including side impact air bags, which can reduce injuries in a crash.
- Antilock braking systems, which can provide directional control in emergency braking.
- Electronic stability control (ESC), which can help reduce rollovers.
Understand the costThe combined cost of owning and operating a car is another lesson to share with teens. The 2015 edition of the AAA's Your Driving Costs survey puts the average annual cost of driving a sedan 15,000 miles a year at 58 cents a mile—$8,698 a year, including purchase price and operating costs. Put that figure into perspective for teens by converting a prospective vehicle's cost into hours worked. To get an approximate figure, take the number of miles the teen will drive each year, multiply it by 58 cents a mile, and divide the result by the teen's hourly wage. It typically takes the equivalent of months of hard work to cover vehicle costs on a teen's income.
Get a loanYour credit union is a smart first stop for teens looking for car financing. For example, teens who seek their first vehicle loan from one New Mexico credit union must meet with a financial consultant, according to the associate vice president, membership development.
Make an agreementIf parents have a financial stake in the teen's car—a down payment, loan payments, insurance, or other costs—then one credit union lender advises parents and teens to create a written agreement. The agreement should cover:
- Who pays for specific types of expenses, such as insurance or repairs.
- How the teen's behavior affects driving privileges.
- What the consequences will be if the teen fails to live up to the agreement.
- Is the dealer reliable? Check for complaints with the state attorney general's office or the Better Business Bureau. Some credit unions share a "preferred dealers" list with members; check with your credit union.
- Is the vehicle in good shape? Get the vehicle inspected by a good mechanic. Consider looking for used cars that are "certified" as meeting the manufacturer's resale standards.
- What is the bottom line? Remember to add sales tax, title fees, and license fees to the sticker price.
- Learn about specialized insurance products. After a crash, gap insurance covers the difference—the gap—between the amount owed to the lender and the amount covered by insurance. Mechanical breakdown insurance helps pay for major repairs. Many credit unions offer these products to members at better rates than the dealerships.
Avoid the rushMany credit union lenders have seen teens rush into "deals" only to find they paid too much, agreed to a loan at exorbitant interest rates, lacked a clear title, or bought a car with serious defects. Parents and teens alike can benefit from taking time to share stories, do their research, and consider what owning a car will cost over time. It saves a lot of headaches in the long run.