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A recent Autotrader.com survey reveals that today’s parents are far more likely to buy cars outright for their children than their parents were. According to Autotrader’s survey of parents of recently licensed teenaged drivers, 14% reported that their parents had purchased their first car, while 41% of this same group reported having bought their teenagers’ first car for them.
Things have changed a lot in the last generation. Access to credit is generally easier. And low interest rates tend to make car payments and other debts more affordable for those over age 18 – but not for teenagers who cannot unilaterally enter into a car loan agreement.
There are also far fewer stay-at-home parents than there have been in the past. Families with the means to purchase a child’s first car for them are frequently more affluent because both parents work. In addition, because of the dual working parents, there is often nobody to chauffeur teenagers to their many extra-curricular events, unless you prefer to use ride-shares like Uber or Lyft.
In other scenarios, parents may buy cars for their children – or provide a lot of help – for safety reasons. No one wants his daughter to be stranded on the roadside because of an overheated clunker. And cars aren’t nearly as easy for kids to repair themselves as they once were.
The decision to purchase a car for a teenager is one that every couple that is raising kids will one day have to consider. There is no one solution that is best for every family.
Regardless of the path your family chooses, children should have a financial goal. Saving for something as substantial as their first car helps children learn the value of deferring consumption and planning ahead. If you do decide to purchase a car for your teenager, try not to short-circuit that important life lesson.
One idea: Offer to match your child’s savings – 401(k) style – toward a worthwhile goal, based on your family’s budget. If you can’t match dollar-for-dollar, try to match something, to give your child an incentive to save.
You can also loan the money to your child – and keep “repossession rights” on the car. The child must make regular payments to you as a means for keeping the use of the car – plus insurance. However, you can arrange to forgive parts of the loan based upon the successful completion of certain benchmarks. For example, you could forgive a certain amount of the loan or waive payments, for making the honor roll in high school, successful graduation, landing a scholarship, or the successful enrollment and completion of the first year or two of college.
If your decision is to buy your child a new or used car, apply with us first and see how low the payments can be!
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