How To Help Your Teenager Buy a Car

What they need to know and how you can help

Updated on July 13, 2022

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A parent and teen look at a new car with the teen in the driver's seat. — Photo:
LightFieldStudios / Getty Images

When your teen gets a driver’s license, they may also want to get their own car. This is a great opportunity to help them develop healthy financial habits while saving for the cost of the car. Help your teen by teaching them to make a budget, reviewing the pros and cons of new and used cars, and showing them different ways to pay for a vehicle.

Key Takeaways

Encourage your teen to get a job if they don't have one already so they can pay for a car.
Teach your teen to budget and urge them to save at least 10% of their earnings.
Review the pros and cons of new and used vehicles with your teen so they can make an informed decision.
Make sure your teen understands the additional costs that come with car ownership, such as gas, insurance, maintenance, and repairs.

Teach Your Teen How To Make a Budget

Discuss saving for a car and savings goals in general with your teenager as soon as they begin high school. Saving for a larger, more expensive item like a car might take them months or even years.

Help your teen create a budget if they have a steady job. Help them and make sure they put their earnings into a savings account at a federally insured bank or credit union. This account can be dedicated to their vehicle purchase, or it can be used to save for multiple financial goals.

Talk to them about their interests and what employment opportunities might be available if your teen doesn't have a job yet. Teens of all ages may be able to make money delivering food, babysitting, mowing lawns, lifeguarding, or tutoring.

Note

Help your teen look for paid work in a field they'd like to pursue as a career so they can gain valuable experience and save for a car at the same time.

Consider Whether To Buy New or Used

Teens tend to drive older cars. Older cars generally have a lower upfront cost, but your teenager might decide they’d like to wait a little longer and save up for a newer car. This might save them insurance and maintenance costs in the long run. You can discuss the pros and cons of new and used cars with your teen and decide together what the right type of car might be.

New Cars

New cars typically offer lower initial maintenance costs, as well as more advanced safety and technology features. A new car will often come with a warranty, which should help your teenager cover the cost of any car repairs or part replacements they might need. New vehicles are also easier to customize.

The greatest downside to buying a new car is that it’s more expensive than a used model. The value of a new car will also depreciate as soon as you drive it off the lot.

Used Cars

Used cars are generally less expensive than new vehicles, and a car that’s a few years old can be a great deal because you’re letting someone else take the immediate depreciation hit. But your teen may end up with a less reliable vehicle that needs frequent repairs if the car is significantly older. They may also have to settle for a car that doesn’t have the exact features they’d like.

	New Cars	Used Cars
Cost	Higher cost	Lower cost
Reliability	More reliable	Less reliable
Features	More advanced	Less advanced
Repairs	Lower cost	Higher cost

How Your Teenager Can Buy a Car

You may want to discuss different payment plans and methods with your teen, and work together to figure out the best option for them.

Paying With Saved Funds

Your teenager may be able to pay for their car in cash instead of taking out a loan or leasing a car if they're able to save enough money. Every person’s situation is different, but one common recommendation is to keep the cost of your teen’s first car below $10,000.

Your teen will most likely be making minimum wage, so it might take them quite a long time to save up for a safe and functional car. You may want to help your teen pay for the car by matching what they save if you can afford to do so. You might give them an additional $4,000 to put toward a new car if they've saved $4,000. This helps them afford a nicer car while developing healthy financial habits.

Taking Out a Loan

Car loans are offered by banks, credit unions, online lenders, and auto finance companies. They’re only available to drivers who are at least 18 years old. Most teenagers have limited credit histories at this age, but they can still shop around and look for lenders who might be willing to offer car loans to those with limited credit or no credit. They can ask you or another family member to co-sign their loan if they can’t find loans at all, or if they can't find loans at a reasonable rate.

Note

Your credit score will take a hit and you’ll be on the hook for their payments if you co-sign your teen’s loan and they default.

Leasing

Your adult teen can enjoy the latest features, a comprehensive warranty, and affordable monthly payment if they lease a car. Most leases come with mileage restrictions, however, so this option might make the most sense if they tend to stay local and don’t drive very far.

The downside of leasing is that your teenager may have to pay a penalty if they decide to terminate their lease early. They may also face penalties for wear and tear.

Additional Costs When Buying a Car

The average cost of owning and driving a new car in 2021 was $9,666, according to AAA. That includes depreciation, fuel, insurance, taxes, maintenance, and the interest you paid on your loan, but not the cost of the car itself. You’ll want to make sure your teenager knows about all the extra costs that come with owning a car so you can help them prepare to pay for ongoing expenses, including:

Car insurance
Vehicle maintenance and repairs
Gas
Parking

Frequently Asked Questions (FAQs)

How much should a teenager save before buying a car?

It depends on how much the car costs. They'll need to save for the full amount if your teen plans on paying for the car in full, either on their own or with your assistance. The recommended amount for a down payment is about 20% if your teen takes out a loan instead.

Can my teen buy a car from a dealership?

Your teen can buy a car from a dealership on their own if they're at least 18 years old. But they may need to pay the full cost of the car upfront or get a co-signer if their credit history is thin or nonexistent. You should check the laws in your state, but minors are not typically able to own a car and they would not be allowed to buy a car from a dealership by themselves.

How old does my teen have to be to buy a car if I’ll be their co-signer?

Your teen can buy a car if they are 18 or older and may need you to co-sign their auto loan. Someone younger than 18 can't take out or co-sign a car loan. You should check the laws in your state, but minors are not typically able to own a car.

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Sources

The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.

Insurance Institute for Highway Safety. “Teens Are the Riskiest Drivers, but They Drive the Least Safe Vehicles.”
State Farm. “New vs. Used Car—Calculate Cost of Ownership.”
Bank of America. “Buying Your First Car: What Every Teen Should Know.”
Federal Trade Commission. “Financing or Leasing a Car.”
AAA. “Your Driving Costs 2021.”
Chase. “Understanding Down Payments on a Car.”