Buying Your First Car: A Guide for Teens (and Everyone Else!)

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teen buying car with familyWe know that getting a drivers license can be stressful–that’s why we do everything we can to guide our drivers ed students through the process in a clear and straightforward way. But for many, the unfortunate fact is that as hard as getting a license can be, the process of buying your first car can be even worse. With so much to worry about, it’s no wonder that more and more teens are waiting to become new drivers.

Don’t let the complexities of buying a car discourage you from getting your license! Even without owning a car, having a license gives you more options for getting around, including renting a car or borrowing one from your parents or friends. Besides, getting your license isn’t going to get any easier over time. And the truth is, buying your first car may easier than you think. After reviewing this handy guide, you may discover that owning a car is within your reach after all!

Step 1: Set Your Budget

The cost of a new car can be intimidating, especially when you’re a teenager and there’s only so much you can earn. With even the cheapest new cars priced at around $15,000–more than most teens can earn in a year–the idea of purchasing one of your own can feel more like fantastic wish than a plausible goal. But actually, standard financing options and the availability of high-quality used cars mean that owning a car isn’t impossible. In fact, if you can spare $150 to $200 a month, you may be able to afford a car that meets your needs.

The important thing is to start by figuring out what you can afford, then choosing from cars in that price range. By deciding on a realistic budget, your goal will seem much more attainable. Think about whether working for a few extra hours a week will get you closer to your objective. And if it turns out that the most you can afford still isn’t enough to buy a car, at least you’ll have a better idea of how far you can stretch your budget. The worst thing you could do is let your desire for a car get in the way of saving for college or other financial commitments you may have.

When preparing to buy a car, keep the following things in mind:

  • If you can afford to pay the full cost upfront, you’ll save a significant amount on interest and may even be able to negotiate a discount. Because cars are so expensive, however, you’ll most likely need to secure a financing arrangement.
  • As most teens lack credit histories, they can have trouble arranging financing, particularly with the car dealers themselves. Your bank, credit union, or even insurer is a better bet. You’ll probably need someone with a credit history and employment history, such as a parent, to cosign your loan.
  • Even with financing, your biggest cost will be upfront: unless you can afford a 20% down payment, buying a car is a risky investment. The more you can put down, the lower your monthly payments will be. Don’t think you’ll have enough? Start saving early and see if a family member can help you cover the initial costs.
  • calculatorWhile financing deals vary, use this simple rule of thumb to estimate how much your monthly payment will be: with a 48-month loan, you’ll need to pay about $25/month for every $1,000 you borrow. Try to avoid any repayment period longer than 48 months. You may also find this calculator helpful.
  • Don’t sign any financial agreement before reading it thoroughly; if you have a hard time understanding anything, ask a responsible adult to talk you through it. However, never rely on the dealer or loan officer to explain the terms of the agreement to you: they’re naturally more concerned with the success of their business than with your best interests.
  • Don’t forget about the added expenses that come with owning a car, such as gas, maintenance, and insurance. Many of these costs, such as titling and registering your car, will be due up front.

Consider visiting several financial institutions, as well as the car dealership, to find the cheapest option available to you. The interest rate on a car loan is based on a number known as APR (Annual Percentage Rate). While some lenders offer loans with an APR of 3% or less, rates this low are usually reserved for people with excellent credit histories; expect yours to be up to twice as much and be prepared to shop around. To avoid embarrassment and frustration, it’s also a good idea to arrange for a loan before you go car shopping.

Can’t afford a large down payment? You may want to consider a lease. Leasing a car is like renting an apartment: you pay a certain amount each month, but at the end of the agreement, the car must be returned to the dealer. In fact, for no down payment and the same monthly payment, drivers can often afford a more expensive car under a lease. On the other hand, with a lease the car is not yours and you won’t get anything for it when it’s time for a new one. Furthermore, the dealer may limit the number of miles you can travel and require that you take out additional insurance on the car. You may also need a parent to take out the lease for you, as leases are not typically available to people under 18.


Step 2: Do Your Homework

teen using laptopWe know what you’re thinking: the last thing you need is more homework. But think of buying your first car as a chance to apply all those homework skills to achieving one of your real-life goals. By spending some time researching your options before you buy, you’ll have a much better chance of finding a car that you can afford, that meets your needs–and that you actually like! And when you go to a dealership, the more information you have, the less likely it is that you’ll be talked into something that’s not the right fit for you.

The first thing to do is figure out how you’re going to be using your car and what you need it to do. Ask yourself:

  • Will you need to drive for school, work, or sport activities? How much traveling will you do on average? What kind of vehicle will be most appropriate for the tasks for which you intend to use it? Are other family members planning to drive your car or get rides from you?
  • Instead of buying a car, could you use a family car, ride a bike, or take public transportation? If so, what unique benefits will you get from having a car of your own, and are those benefits worth the cost?
  • What features do you need your car to have? Want your car to have? Are there any technologies you have to have or know you don’t want? (If you’re considering an electric or hybrid car, be sure to review this information.)
  • Do you plan to be transporting a lot of luggage or passengers on a regular basis? Is there a particularly body style (e.g.. sedan, minivan, SUV) that makes more sense for your situation?

crowded parking lotAs you consider these questions, keep in mind that your goal should be to minimize expenses. Give serious consideration to the question of whether you really need a car of your own, especially if you’re unsatisfied by the options available at your budget; it may be better to wait and save for something better. As you answer these questions, create a list of the features and considerations that are essential to you. Use this list to help you narrow down your options to a few models.

These days, there’s so much information available for free on the Internet that there’s no excuse for arriving at the car dealer unprepared. While you can also consult car listings in the newspaper and other free local guides, most of the same listings can be found online with more detailed information. Before you go car shopping, put together a list of possible contenders by reviewing the following sites:

  • Advanced Search: Search cars near you by body type, transmission type, engine power, and more to make sure you get the performance you need.
  • Edmunds Car Finder: Use this tool to search by an extensive range of features like keyless ignition and navigation systems, as well as by price and fuel efficiency.
  • Consumer Reports: Get safety and reliability information from the national leader in product analysis and information.
  • Kelley Blue Book: This trusted resource highlights reviews and recommendations for every class of car, and offers more tools to help you research your options.
  • J.D. Power: Famous for its industry awards, this site can help you learn more about the best options among the cars you’re considering.
  • Yahoo! Autos: Peruse a wide range of car news, reviews, and buying guides on this site.
  • Insurance Institute of Highway Safety: Find out how the cars you’re considering performed during rigorous crash tests.
  • Research fuel efficiency ratings for the cars on your list with this official government site.

Note: The links listed here represent only a fraction of what each site has to offer. Be sure to browse them all for more information. Keep track of everything you learn: you never know when this information may come in handy!

Many online car searches typically provide each seller’s price, so as you review your options, be sure to determine what a fair price to pay is for each model. Some of the most important factors you should be looking at include safety, reliability, fuel economy, and the presence of essential safety technology such as power steering, an automatic transmission, and antilock brakes.


Step 2b: New or Used?

used car for saleBefore buying your first car, one decision you’ll have to make is whether you want to purchase a new car or a used car. (Most of the websites listed above include new and used car searches, but don’t allow you to search in both categories at the same time; be sure to check both categories on at least one site so you can better compare the benefits of each.)

New cars and used cars both have their strong points:

  • New cars have low initial maintenance costs, superior fuel economy, and more advanced safety features. With new cars, the cost of repairs is covered by the manufacturer’s warranty for at least a year and, in many states, inspection requirements do not initially apply. It’s also easier to customize what features you want when buying a new car.
  • Used cars are typically available for significantly less than comparable new cars. Because it costs less to replace a used car, insurance rates are usually lower as well. The range of used car models available is greater as your choices are not limited to the current model year.

Most first-time car buyers are on a budget, which is one reason why these drivers typically opt for a used car. Another factor to consider is that, with a used car, it can be easier to bear minor collision damages, as the car will have some wear and tear already and your initial investment is likely to be lower.

However, the fact of the matter is that when you buy a used car you’re more vulnerable to fraud. With a new car sold by the manufacturer, you can be reasonably confident that it hasn’t been driven or tampered with. However, a used car could have been used in any number of ways before you see it, and just because it doesn’t look damaged doesn’t mean there’s not a problem you can’t see. Used car sellers often have an incentive to minimize signs of wear and damage–some unscrupulous dealers have been even known to roll back the odometer–and it’s your responsibility to make sure you’re not taken advantage of. Remember, used cars don’t necessarily come with a warranty, especially if you buy from a private seller, so if something goes wrong, you’re on your own!

Before purchasing a used car, be sure to find out its Vehicle Identification Number (VIN). There are several sites online that allow you to check a vehicle’s history using the VIN, so you can determine whether it’s been stolen or involved in a significant collision. You can also use the VIN to find out if a recall has been announced for the car.

Here are some more steps you can take to protect yourself:

  • Avoid dealers that specialize in cheap used cars and crazy deals. Other used car sellers, including individual sellers, are usually more reliable. It’s a good idea to check used car dealers with the Better Business Bureau or a local consumer protection agency before you buy.
  • Use the research resources listed above to determine the market value for the car you’re interested in. If the car is much cheaper than comparable vehicles, that may be a sign that something’s wrong with it. In particular, consult the Kelley Blue Book to figure out what’s a reasonable price for the car.
  • mechanic looking to car engine and holding lampAsk an independent mechanic–preferably someone you trust or who’s been referred by a friend or family member–to check the car out before you buy it, especially if you’re purchasing from an individual. If the seller has nothing to hide, he or she won’t have a problem helping you arrange to do this. Vehicle history reports are not always 100% comprehensive, and having a professional look the car over can help you discover what, if anything, has been missed.
  • While it may be tempting to buy an older used car, either because it’s cheaper or you like the style, be aware that because older cars often lack electronic stability control (ESC) and air bags, teens driving them are significantly more likely to be in a fatal crash. Moreover, the older a car is, the more its features and components become a liability, as they can be difficult and costly to replace. Be sure to review the latest report from the IIHS on the safest used cars for teens.

Finally, protect yourself when you go to check out a used car being sold by a private seller. While most advertisers just want to sell their car, some people set up phony used car listings to lure victims to rob. Never go to a meeting by yourself. Insist on meeting in a neutral public place during daylight hours. And never bring a large wad of cash with you when you go; for transactions like this, a check or money order is safest.

For loads more advice on buying a used car, check out this website created by the Federal Trade Commission.


Step 3: The Test Drive

driver test driveWhile research can help you figure out what’s out there and narrow down your choices, it can’t tell you how it will actually feel to drive the car. A car that looks good on paper won’t necessarily handle as you expect it to, and as a new driver it’s especially important to test drive several models so you can learn how performance can vary from vehicle to vehicle.

A test drive is important whether you’re buying a new car or a used one, or from a dealer or private seller. If you’re buying from a dealer, you can probably just show up at a time that’s convenient for you; be aware, though, that most people shop for cars on the weekend, so the salesperson may not be able to give you as much time. It’s a good idea to plan on test-driving a car for at least half an hour so you have a chance to find out how it handles on different road types and in different environments.

If you’re buying from a private seller, be sure to call ahead to schedule an appointment. When you’re talking to the seller, try to find out as much as you can. Ask about how many miles the vehicle’s traveled, how long it’s been since it’s had maintenance performed, whether it’s ever been in a crash, and if anything is currently broken. Don’t feel shy about bring up anything you’re concerned or curious about: after all, if it turns out the car isn’t what you’re looking for, it’s better to know ahead of time so you can avoid wasting your time and the seller’s.

When you go to test drive–and potentially buy–a car, we recommend that you bring a parent or other knowledgeable adult along with you (this is especially important if you’re meeting with a private seller). As a first-time car buyer, you’re more likely to be a target of unscrupulous salespeople, and having an adult with you can ensure you’re taken seriously and treated with respect. Moreover, the adult may be able to point out potential issues you may not have noticed.

man checking under carWhen you finally have the car in front of you, perform a pre-purchase inspection before taking it for a spin, particularly if it’s used. (With used cars, it’s also a good idea to show up for an appointment with a car seller 15 to 20 minutes early, as the seller may be preparing the vehicle for your visit.) Look all around the car for any signs of damage or vehicle problems. Remember these tips for inspecting a car you’re thinking of buying:

  • Always check out a car during the day; at night, it will be hard to assess the car’s condition or notice repainted spots that may indicate damage that’s been concealed.
  • Be ready to review everything. Don’t be afraid to get on your hands and knees to check for leaks under the car or to ask to peek under the hood so you can check the condition of the engine, the fluid levels, etc.
  • Use all your senses. Sometimes the only way you’ll be able to notice a problem is by smelling it or hearing it during your test drive.
  • Before you get on the road, adjust the seat, the mirrors, and the vehicle controls so you can give your full attention to how well they work. Have the seller talk you through the car’s electronic features and dashboard indicators, then try them out for yourself.

monroney sticker close upEven if you’ve researched the car already, be sure to also review the window stickers if you’re buying from a dealer. These stickers will give you accurate information about the performance and features of the car you’re looking at. In particular, all new cars are required to have a detailed Monroney sticker attached to the side window with official ratings and benchmarks, specifics about where the car was manufactured, and the suggested retail price.

Finally, it’s time to take the car out on the road. If possible, use an Internet mapping service to plan a route ahead of time that includes city and freeway driving, curved and inclined roadways, and roadways with different kinds of traction. That way, you’ll have a chance to see how the car handles in different environments. Let the salesperson know about your plans, too, so he or she can help you have the best experience possible.

During the test drive, be alert for any performance issues that might signify a serious problem. Only by testing the car’s performance can you find out if it will handle well when you really need it to. During a test drive, you may be tempted to proceed with an abundance of caution out of fear of damaging the car. You won’t learn much with this approach, however. This is your chance to find out how quickly the vehicle accelerates and how it responds when you have to brake hard, so don’t be shy about putting the car through its paces. With that in mind, remember not to do anything illegal. And please give a heads-up to the salesperson and anyone riding with you so you don’t give them a heart attack when you maneuver suddenly.

When you’re test driving a car, remember to:

  • Pay attention to how the dashboard is laid out and whether or not you find the vehicle controls awkward or confusing to use.
  • Make sure you’re able to see the road and check your mirrors and blind spots easily.
  • Test the wheel alignment by driving at 20 to 30 mph beside a pavement line or side wall. Roll down the window so you can hear if the car is making any unusual noises.
  • Get a rough sense of the car’s fuel efficiency by noting what the odometer and fuel gauge say at the beginning and end of the trip.
  • Identify whether the car responds to steering unexpectedly or seems improperly balanced when you drive.
  • Test any advanced systems, including rearview cameras, blind spot monitors, and voice command systems, as well as essential safety technologies such as ABS or ESC, while you’re on the road.

When you’re taking a test drive, it’s a good idea to treat the salesperson as a resource. After all, he or she probably knows about the features of the car as well as anyone and would be happy to demonstrate them for you. Consider asking the salesperson to take the wheel for part of the drive so you can have time to look over the car and discuss it without it distracting you from the road.

Finally, if you’re checking out a used car, don’t forget to get a mechanic to look it over before buying, even if you’re completely satisfied with your test drive experience. A mechanic your family trusts, or one that’s won a number of local awards, is usually the best choice. You’ll probably need to pay for the service, but it’ll cost you a lot less than a car that turns out to be a dud!


Step 4: The Art of Negotiation

car buyer negotiationDon’t get stuck paying the sticker price! Unlike most things you’ll buy, the price of a car can usually be changed to some degree at the discretion of the seller. Used car prices are typically more flexible, as they will not be as closely linked to the manufacturer’s production costs. When negotiating the price, it’s especially important to have a parent or other adult around; even if you take the lead in the bargaining process, the presence of an adult will force the salesperson to take you more seriously.

When discussing the price of a car with the seller, whether the car is new or used, remember these dos and don’ts:

  • Do come prepared with knowledge of how much comparable cars are selling for. Letting the dealer know you know there are other options out there will decrease his or her ability to frame the discussion of price.
  • Don’t mistake the salesperson for someone with your best interests at heart, no matter how convincing he or she is. You know you better than a stranger ever could. Don’t let yourself be talked into any features you don’t need or want.
  • Do be prepared to bring up any concerns you have or problems you noticed during the test drive. Especially if you’re buying used, you may get the seller to discount the price by the cost of getting the issue fixed.
  • Don’t let your enthusiasm show or tell the dealer the maximum price you can afford. By starting low, you can make concessions to the dealer and still end up paying a reasonable price or getting extra features thrown in.
  • Do be prepared to walk away if you don’t think you’re getting the best deal. If the dealer is giving you a hard time when you’re trying to give them money, odds are they’ll give you a hard time if you have problems with the car.

If you’re buying a car from a dealer, they will most likely try to get you to agree to add-ons like an extended warranty or paint protection. In general, unless it involves actual mechanical improvements to the car, add-ons like these are designed to boost the company's profits. When negotiating, try to avoid paying extra for such features; if you do want them, you may be able to convince the dealer to throw them in for free during the negotiation process.

Hand with Pen Signing FormOnce you’ve agreed on a price and any options to be added to your car, it will be time to fill out the paperwork. At this point, you may be exhausted and tempted to simply sign on the dotted line. Don’t do it! Make sure you review the entire contract with the dealer and the adult you’re with, asking questions about anything you don’t understand or which seems to contradict something you talked about earlier. Before you leave the lot, you’ll also want to confirm whether the dealer will take care of the initial title transfer and vehicle registration for you.

While there will be fewer terms and conditions to review, buying a used car from a private seller can be more complicated because the process of transferring car ownership varies from state to state. Your best bet is to research rules for selling a used car in your state ahead of time so you can make sure that everything gets done properly. Make sure the seller also hands over any papers associated with the car, including the owner’s manual and emissions test documents or inspection stickers.

Before you sign, take one last moment of reflection. Remember that, once you’ve agreed to buy the car, it’s yours. There’s no “Three-Day Buyer Remorse Period.” You can’t take a car back because you find a better one a few days later. And most used cars are typically sold as-is, so if a problem arises, it will be too late to do anything about it once the sale is final. Be sure you’ve addressed any misgivings you have before you commit.

Step 5: The Road Ahead

new car holding keyNow you’re a car owner! While it may feel like a whole world of opportunity is opening