Buying Your Teenager's First Car: What You Need to Know
Aside from the obvious emotions -- your fear, their extreme excitement -- it's a situation full of financial implications. Do you buy used or new? Who pays for what? How to get the best deal on insurance? The list goes on and on.
The experts weighed in on this family turning point.
Don't Get It Twisted
"Having a car is not a birthright," says Gail Cunningham, spokesperson for the National Foundation for Credit Counseling, who raised four children. "Today's teens seem to think that they should have a car waiting for them in the driveway when they return home from the Motor Vehicle Department with their driver's license. If that's right for your family, fine. But don't be held hostage to peer pressure, and by that I mean from other families who are buying their teen a car."
Secondly, she says, the teen should not be driving a better car than mom and dad. "Today's high school parking lots look like a showroom with the latest models on display. What happened to handing down a family car from child to child?" she asks.
Thirdly, take advantage of a teachable moment. "The child should have some skin in the game," says Cunningham, who recommends opening a "My First Car" savings account. Let your teen pile up money from summer jobs, allowance, holiday and birthday gifts and more. You can offer to match their money toward a down payment.
New vs. Used
First on your list should be to research which makes most sense for you: buying new or used.
"Buying a new car is insurance against breakdowns and repairs, regardless of the age or experience of the driver," says Bob Gritzinger, executive editor of AutoWeek.com.
While you'll get peace of mind, you'll also pay more for that luxury -- though the prices of used cars have risen in recent months -- as well as more for insurance.
"A first time driver doesn't need a new car, but of course they want one," says Lori Mackey, president of Prosperity4Kids. "The depreciation, probability of fender benders and the price tag [means new] is not the most logical way to go."
Financially, you are almost always better off buying used, says Jack Nerad, executive editorial director for Kelley Blue Book. "If you buy a certified pre-owned car you get the advantages of a new-car like warranty, and perhaps, better financing rates."
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Once you've settled on new versus old, then comes the tougher question: Which car? For starters, think about how often and how far the car will be driven typically. Will your child be driving back and forth from college over a great distance? Or will the car mostly be used locally?
Go over safety and crash-test information from organizations such as the National Highway Traffic Safety Administration and the Insurance Institute for Highway Safety, suggests Gritzinger. Go through quality and reliability ratings from a measuring service such as J.D. Power and Associates.
While new cars will have all the latest safety bells and whistles, late-model used cars will have airbags, anti-lock brakes and electronic stability control, and their power and performance won't overwhelm new drivers, says Gritzinger.
Less power in the hands of a young driver is good, regardless of the model. "Choose a car with a responsive chassis -- one with good handling, quick steering and great brakes -- that takes advantage of a teen driver's naturally quick reaction skills," advises Gritzinger.
LeeAnn Shattuck, co-owner and chief car chick with Women's Automotive Solutions, says to forget "image," because it can come at a cost. "I see these young, inexperienced drivers in Mustangs, BMWs, and large SUVs. These automobiles are big, powerful and difficult to control for even experienced drivers. In the hands of a new driver, they can be deadly weapons."
Cars that are too small are problematic too, as they do not protect passengers as well in a front-end crash, warns Shattuck. "Your teen is safest in a mid-sized sedan with a four cylinder engine, airbags and a good crash test rating."
You also want to take into account what kind of gas mileage the car gets, and how much it will cost to maintain and insure.
To check mileage data, go to www.fueleconomy.gov. "This not only allows you to check and compare fuel economy ratings, but give a lot of good tips on how to maximize fuel economy in other ways that everyone can do. You can research vehicles back to 1987," says Michael Rabkin, president, From Car to Finish, a vehicle research firm.
Some cars have safety systems geared specifically toward teen drivers. Hyundai Blue Link, for example, says Gritzinger, can alert the vehicle's owner if someone has driven the car beyond preset boundaries or after certain hours.
Accept the fact that buying this car is going to take a lot of work, research. "Remember, there are a lot of scams and if it sounds to good to be true, it probably is. My son will be driving in four months and he has been researching daily. He found a car that was priced extremely low. After digging deeper, he found out it was a 'salvage' car. I said 'no,' and he argued with me until I said, go research online what salvage means. No further conversation was necessary," says Mackey.
Shop hard and test drive. "Don't feel you have to buy the first car you see," says Nerad, whose Kelley Blue Book is a great place to start, as well Edmunds.com.
Save on Insurance
You've found that perfect ride, but before your kid hits the road, there's the little matter of insurance. A recent Nationwide Mutual Insurance Company found that households shell out an average of nearly $3,100 each year to allow their teens to drive, and some $800 of that, on average, goes for insurance, said Larry Thursby, vice president of auto product and pricing at Nationwide.
The least expensive way to insure your teen is usually to add him or her to your policy, says Chris Kissell, managing editor at Insurance.com. "However, this can be a money loser if your car is particularly expensive to insure. In those cases, it may make sense economically to have the teen buy a car that is less expensive to insure and to purchase his or her own policy."
Capitalize on good grades. Many insurance companies offer "good student" discounts to top students. "This definition varies from insurer to insurer, but it usually is someone who has a B average, is on the honor roll, Dean's list, or ranks in the upper 20% the class. The discount typically ranges between 10-15%," says Erik Larson, president and founder of NextAdvisor.com, a consumer service review site. Nationwide, for example, offers a 25% reduction in premium for drivers under 21 who maintain a "B" average or better.
Beyond that, have your teen study up. A discount of 5% to 15% may be given to those who have recently taken a defensive driving course, says Larson.
Set the Tone
Before giving them a car, create a "Rules of the Road" contract for them to sign, suggests Cunningham. It can include such things as how many people can be in the car at once, who will pay for gas, insurance, maintenance, what happens to driving privileges if the child gets a ticket or has a wreck, and what time curfew is, among other things.
The last big big issue is how much weight parents have in the final decision about which car to buy. Says Mackey, "If you are paying 100% then you have 100% of the final decision. If your child is not in agreement, then bank the money until they have a certain amount to contribute."