Teen Auto Loan Advice

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Teen Auto Loan Advice

by Mike Hamel

If your teenager is buying the car in his or her name, chances are they do not have established credit. This is the single biggest hurdle to being approved for a teen auto loan. The young applicant will have to show that he or she has steady income and can make the payments. Many lenders may also require a cosigner with good credit.

If the teen is going to be making the payments on the teen auto loan--and covering some or all of the insurance, fuel and maintenance costs--it would be wise to buy a vehicle that he or she can pay off in 36 to 48 months. Then there's the down payment. At least twenty percent of the car's asking price is suggested to keep from getting upside down on the loan and owing more than the vehicle is worth.

Higher Insurance

According to the National Highway Traffic Safety Administration, teens (ages 15-20) constitute seven percent of all licensed drivers but are involved in fourteen percent of all fatal auto crashes. According to the American Academy of Pediatrics, a 16-year-old is more than 20 times as likely to have an accident as other drivers.

Motor vehicle-related crashes are the leading cause of death among 16-to-20-year-olds. Because of these grim statistics, insurance rates for young people are between fifty and seventy percent higher than for drivers who are over 25 or married. Males will pay more than females since they are involved in more accidents.

Professional Advice

"I wouldn't get a small sport utility vehicle," says Russ Rader, of the Insurance Institute for Highway Safety. "They sit up high and have a tendency to roll over. They're promoted as off-road vehicles, and it doesn't take much for a kid to want to test the limits of a vehicle.

"I also wouldn't get any high-performance sports car. If a young man falls in love with a car that's bright red, has a big engine and sits low to the ground, it's probably not the car for him."

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