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Teen Resources

Large Purchase: Car

Buying your first car is a big step. No, it’s a huge step! You've probably been saving up for several years and are now looking to spend a large chunk of change. There are a few things you need to know when shopping around for a vehicle and financing options.

First, think about the car you need versus the one you want. What payments will you realistically be able to make? Will you be able to afford the car if your situation changes, such as losing a job? Do you have enough money in savings to cover the cost of ownership like gas, maintenance, insurance? After all, purchasing a car isn't just about the car itself, it comes with a world of other responsibilities.

Although exciting, purchasing a brand new vehicle can be costly. Cars typically lose 20% of their value the minute you drive off the lot. Consider buying a used vehicle that is in good condition and comes with an extended warranty. Not only will your sticker price be lower, but often times the warranty on used vehicles is significantly better than new ones. Be sure to do your research and don’t make any brash decisions.

When thinking about financing, decide if a lease or buying is best for you. While a lease will typically allow you to make a low down payment and lower monthly payments, at the end of the lease, you are technically left with nothing to your name. If you purchase a vehicle and make monthly finance payments, the car is yours at the end of your term.

If you have the option to take a cash back incentive or a lower APR offer from a dealership based on your good FICO score, which do you take? The easy answer is, it depends. Typically the cash back incentive on a lower cost vehicle, matched with a low APR from your credit union or bank will get you the best deal overall. However, if you are luck enough to afford a pricier vehicle (think - above $20,000), a zero percent finance option from a dealer may be the best route. Take time to calculate your individual situation and determine what works best for you and your budget.

Even though buying a new car every few years will be enticing when you start making more money, keep your car for as long as possible. If your car payment was $250 a month, pay yourself that $250 when your term is over. Build up your savings account, or put it in a share certificate where you can save the money long-term for your next large purchase. Paying off your vehicle is a great feeling, but watching your savings grow is even more rewarding!