Looking to buy your first car in 2019? For most teens, that means saving up and tapping into their parents.
You can pay for gas and the occasional oil change with your Current Card, but it will take a bit of saving to purchase your first car. Buying a car is one of the largest purchases a person will ever make- Something that doesn't happen overnight.
Many teens are already in the right financial mindset.
Our most recent Instagram Challenge asked what teens are saving for and we found that 21% are saving up for the future in case they need it. Many are also saving for big ticket items, including their first car (8.2%).
If a new car is your 2019 New Years Resolution, you’ll want to check out our ultimate guide to saving for your first car.
Step 1. Decide Which Vehicle You Want
Before you start saving, it’s a good idea to know what kind of car you want to buy since that’s going to determine how much needs to be saved.
**Most new drivers will want to purchase a used car for a few reasons: **
- This is the car you’re using to really learn how to drive. During this period fender benders are more likely to happen.
- Used cars are a lot cheaper than new vehicles even if they’re just a year old.
- The down payment is lower for a used vehicle.
- New cars depreciate quickly in the first few years, which means they aren’t as good an investment in most cases.
Other things you’ll want to consider include:
- Miles per gallon
- Type of fuel required
- Maintenance needs
These last five points can affect the price, cost of owning a particular vehicle, and resale value.
Once you’ve decided on a few types of vehicles that you like, do some research to find out how much they sell for. Play around with the year, mileage and upgrades to find an accurate price range for the specific model you want.
Step 2. Set a Savings Goal
Any time you’re saving up for a big purchase, the first thing you should do is set a savings goal. Simply setting a goal significantly increases your chance of success, which is why Current offers teens a savings goal feature that’s super easy to use.
This particular savings goal is the amount you’ll need to purchase the vehicle you want as well as the related costs that are required to drive legally.
Here are a few things to consider to determine how much you’ll need to save.
Before you decide how much you can spend and how much you need to save for a vehicle you have to figure out your financing options. Ask yourself a few questions:
- Will you be financing a portion or all of the purchase?
- If so, how will you get financing? Will it be through your bank or through a dealership?
- Is a family member going to help pay for the vehicle?
- If a parent gets the car loan will you need to make the monthly payments?
When financing is done through a bank or dealership, it can be difficult to get a loan without a credit history, and you’ll need to be at least 18 years old. Typically, a cosigner with a good credit record is needed to secure the loan. That’s where parents come into play. Some parents may also purchase the vehicle outright for their teen if their kid agrees to throw in money of their own or repay their parents the same as they would repay a loan.
With financing, you’ll need to have enough money saved for a down payment. For a used vehicle the required down payment is usually around 10% of the purchase price whereas a new vehicle will require a 20% down payment. Generally speaking, the bigger your down payment is, the lower your monthly payments will be.
Thinking about leasing a vehicle? This can be a cheaper and easier option. Lease agreements can only be signed by people who are 18 or older, and you’ll still need to make an initial payment, pay drive-off fees, and provide the first monthly payment up front.
Just like anything else, sales tax is added on to the price of a vehicle. This is the case whether you buy from a dealership or a private party. At a dealership, sales tax is usually included with the final amount, but not always. If the sales tax wasn’t handled by the dealership or you bought the car from an individual then you’ll have to pay it when the vehicle is registered.
Other Related Expenses
Not licensed yet? You’ll also need to budget for driver's ed courses and licensing fees. In many states both must be covered before you can legally drive your new car.
Registration and getting license plates for the new vehicle also has to be covered up front. After that fees have to paid annually. These costs will vary depending on the state you live in and are an absolute must for the vehicle to be legally driven.
Insurance is another consideration. Almost every state requires that drivers have a minimal amount of coverage. You’ll need to have at least the first month’s premium set aside. New drivers that are being added on to their parent’s insurance plan need to save enough to cover the additional cost. The good news for teens that took drivers ed is you usually get a better rate on car insurance. Getting good grades in school can also lower the cost, so start hitting the books!
It would take most teens many months or years to save enough money to buy a vehicle outright with cash. Even a $5,000 used vehicle would require a lot of side hustles for a teen to save enough. That’s why financing with a hefty down payment or parental assistance is often needed. And if monthly payments have to be paid, there still needs to be enough left over to cover gas and insurance.
Talk with lenders and/or parents to determine how much can be borrowed to buy a car. Add up whatever is remaining for the purchase price, related expenses, sales tax, and down payment to figure out the bare minimum that needs to be saved. That’s your savings goal.
Step 3. Reach Your Car Savings Goal
With your savings goal set now you can decide how you’ll reach it. Time to create a budget!
Budgets are actually pretty straightforward. It’s a run down of all your monthly expenses/spending and income. Teens are fortunate in that they have very few expenses to handle while living with their parents. It’s really a matter of controlling discretionary spending. These days there are plenty of tools like the savings feature on the Current app that can help you stay on track.
Income is the biggest component of saving for your first car. Gen Z is solidly part of the gig economy. While that means you might not have a steady income, there is an upside. Side gigs like babysitting, dog walking, and lawn mowing often pay more per hour than a part-time job at an established business.
Entrepreneurial teens should tap their network to drum up side gigs. Ask your parents to spread the word about your services to friends and co-workers. You can also use social media to let everyone in your inner sphere know that you’re offering a service or goods to earn cash for your first car.