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How to help your kids get their first car
Buying a car is a rite of passage for young people. Financing a first car with a bank loan can be a significant step in helping your kids build a solid credit history and lifelong financial habits.
Here’s how they can pull off that purchase—with a little help from you:
Start early. Start teaching them responsible habits at a young age by opening a savings account and putting aside a specific amount of any money earned or received. Be open about family finances, so they get the idea that there are recurring bills each month that must be paid and that money needs to be both earned and saved.
Help start to build credit. It’s unlikely your kids will be able to obtain a car loan without some sort of credit history. Have them apply for a secured credit card—one backed by money in a savings account—so they can then make purchases with the card and pay it off over time to build a good credit history. Then they will be able to secure a loan to purchase their vehicle. If there’s no time to do this, you may also co-sign a loan, but that leaves you on the hook for payments if they default.
Figure out what is affordable. Have your kids saved money to put toward the purchase of a car? Do they have a steady job that will allow them to make payments? Experts recommend spending no more than 10% of gross monthly income on car expenses, and that number includes insurance costs.
