Once a teenager has got their hands on their driver’s license, the pressure will be well and truly on you, the long suffering parent, to provide a first set of wheels. Unless you’ve thought about this well in advance and made provision for the purchase, you’re going to need a source of car credit in order to pay for that much wanted first vehicle.
The moment you start to research the cost of insuring a car for a teenager to drive, you’ll realize that choosing a powerful, top of the range sports car is not a good idea. Insurance premiums for young drivers are sky high and the chances are you could end up paying more in insurance per year than the value of the car itself.
So, start with something modest. Once your teenager has built up a record of no claims on their insurance policy, they’ll start to see the premium drop, year on year. Eventually, when they’ve built up a healthy no claims discount, they will be able to afford to insure something flashier, but it’s not going to happen straightaway.
You probably aren’t thinking of buying a brand new car for your teenager, unless you happen to have a great deal of spare money. Cars depreciate hugely in the first few years, so for a young driver, a used vehicle is going to be a much more economical proposition.
When it comes to getting a loan to pay for the car, don’t rush into taking the first thing that’s offered to you. Remember you are under no obligation to arrange financing with the dealer who is selling you the vehicle. They would be delighted if you did, because it means they’ll be making even more profit on the sale. But it could be that what they’re so eager to offer you is not the best deal you could be getting.
Doing your research and shopping around may take a little while longer, but it may well save you money. If you have a good credit history and fulfill certain other requirements such as being on the electoral roll, being employed and being able to prove how much you earn by showing payslips, getting a loan should present little difficulty.
However, if you have a bad credit history, things may be a little harder. In these circumstances you may want to consider taking out a secured loan. This means having to put up some collateral against the loan, which is usually your house. If you don’t keep up with the repayments, you could end up losing your home.
If you have any concerns about being able to meet the repayments on a loan, it is worth thinking about taking out payment protection insurance, or PPI. In the unfortunate event that you lose your job, or become unable to work because of illness, the PPI policy will cover the repayments on your loan.
It’s important that you and your teenager fully look into the costs of running their first car. It isn’t just the cost of purchase and insurance that must be considered, but also servicing and garage bills.