Helping your teen buy their first car

Throughout National Financial Literacy Month, we’ve been going over financial advice that parents and teens can discuss, as those teens prepare for financial independence.

A car is a major expense, and often, a necessary one. Even if a car purchase will take place a few years into the future, early savings and positive credit behavior established beforehand can make things easier for your teen.

Knowledge about budgeting, financing and repayment can help your son or daughter avoid credit rating damage and save money over the life of the loan.

If you plan to purchase a car for the family soon, take your teen with you through the process. Here is some basic conversation points:

Save for a down payment. With a down payment, you will pay less in overall interest on your car, because you’ve lowered the principal amount that you need to borrow. A down payment can shorten the amount of time that you repay the loan or lower your monthly payments, so that you don’t over strain your budget.

A sustainable monthly payment is important, because it can help you avoid late payments and a potential default.

Start saving as soon as you anticipate your need for a car. It doesn’t have to be a very large amount, because those savings will add up over time.

Build a positive credit history. If you are thinking about buying your first car, you also should be thinking about your credit history.

Financial institutions are more likely to approve a loan if they can see that you have a history of consistently paying your credit obligations on time.

Once you have a credit card, always pay before the due date, and keep your balance as low as possible. If you want to build your credit history but are having trouble obtaining a credit card, you can look into a secured card.

With a secured credit card, you deposit savings to the credit card issuer, and that amount of savings becomes your “credit limit.” Just check to be sure that the issuer will report your credit card activity to the credit bureaus, so that your positive behavior will be recorded on your credit report.

Choose according to your needs. When you’re young, and you have many goals to fulfill, it’s crucial to consider your financial needs first. Before you shop for a car, create a budget and see what you can afford. Think about your most basic needs and do your research before you step into a dealership.

Compare loans from different financial institutions. You can find the best values by comparing products, and loans are no different. Compare financing available from different institutions, and choose the loan with the best rates and terms. Just try to keep your inquiries to a limited period of two weeks, to protect your credit score.

Get help if you run into trouble. If you experience financial hardship, talk to your financial institution. They may be able to lower your monthly payments temporarily, which can help you avoid late fees, damage to your credit rating, and repossession of the vehicle. It’s always best to discuss financial hardship early, so that you can immediately start working on a solution with the financial institution.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 19 years experience in retail banking and with financial institutions in Guam and Hawaii.  You can email him at  moneymattersguam@yahoo.com.

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