It seems like not that long ago your child boarded a school bus for the very first time. Now she’s ready for a car of her own. But a safe, reliable car can get pricey, even in the used-car market.
Here’s how to find the right vehicle for your needs.
Create a Budget
Before shopping for a used car, determine the price range your young driver can comfortably handle. How much does he have saved to put down, and how much can he afford to finance on his income? Remember to factor in other ownership costs like insurance, gas and maintenance.
Use a car loan calculator tool to look at different payment plans.
People with higher credit scores are more likely to get lower interest rates. If possible, encourage your teen to begin building credit before car shopping by applying for a credit card and using it responsibly.
If you have good credit, an alternative is co-signing your child’s loan to potentially lower his rate. But know that you’ll be on the hook for any missed payments.
Consider the Higher Cost of Longer Terms
Some lenders, particularly car dealers, try to arrange financing based on monthly payments alone. This strategy seems convenient, but it could be a costly mistake. Generally, the longer the life of the loan, the more you’ll pay in interest. Evaluate loans based on interest rates, term length and total financing costs, and encourage kids to choose a used car loan with the shortest term they can reasonably afford.
Banks, credit unions, dealerships, and online lenders offer used car financing. Rates may vary significantly, so comparison shop for your best deal. Be sure to check out credit unions, like Amplify Credit Union, that often offer lower interest rates and more flexible terms than other financing options. You may also find loans with no fees, closing costs or prepayment penalties.
Roberta Pescow, NerdWallet
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