Most teenagers find the prospect of owning their own cars attractive because of the sense of freedom and independence that automobile ownership gives them. However, it is much more difficult for 18 year olds to obtain auto loans to finance those purchases. Lenders are hesitant to lend to teenagers because most teenagers possess little to nothing on their credit rating reports and are therefore considered to be risky lending prospects. It is possible for teenagers to overcome this mistrust using the same means as other people with no credit.
Auto Loans For Teens
People must be at least 18 years old to be able to take out auto loans because minors cannot enter into such contracts. As you know, minors include all teenagers up to the age of 18. People without credit usually try to convince lenders into letting them take out auto loans by:
- Finding a co-signer for their auto loans.
- Collecting documents to prove that they are good lending prospects.
Unfortunately, most 18 year olds cannot rely on the second approach, because they typically lack the proof of steady employment and long-term business relationships that most adults can provide. Instead, teenagers must count on finding friends or family willing to co-sign their auto loan applications. Having a co-signer is the single most effective way to get auto loans for 18 year olds approved. For the best chance of a successful application, these co-signers should possess good credit scores so that lenders will consider them capable of repaying the auto loans if the teenagers go into default.
Consequences and Mitigation of Consequences
Since the terms on auto loans for 18 year olds are likely to be harsh, and most teenagers possess little regular income, their chances for default are going to be high. Teenagers who take out auto loans should prepare beforehand to make sure that they can bear the cost of their loans and not borrow more than what they can repay. Getting auto loans for high mileage vehicles can help cut costs; after all, older vehicles are less expensive, meaning that buyers don’t need to borrow as much to be able to afford them. Similarly, teenagers who take out auto loans are also likely to fare better if they take the time to save up beforehand to make a bigger down payment because that will reduce the amount they have to borrow. For this reason, small auto loans are often the best option for teens; that is, loans that only pay for a portion of the vehicle’s sales price.