Learning to drive and buying your first car is a rite of passage most teens look forward to. But rising costs and steep insurance costs have made saving for a car harder than it used to be. The good news is it can still be done by teaching your teens about money management, savings goals and costs. Here’s what you need to know.
How can parents help teens save for their first car?
Seven in ten young drivers aged between 17 and 24 needed financial support from their parents to help cover their motoring costs, according to the report The Tank of Mum and Dad from Compare the Market. With parents paying an average of £3,528 towards their child’s first car, and the average age of the vehicle being six years old. Here’s how to help your teens contribute to that payment.
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Set a savings goal for your teen with them. The first step is to set a goal for how much money the teen needs to save to get a car. This will help them to stay motivated to save and also motivated to earn more so they can reach their goal faster.
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Help them create a budget. Once the teen has this goal, they need to create a budget to help them track their spending, cut back on unnecessary spending and spend wisely.
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Encourage them to find a part time job. One of the best ways for teens to save money is to get a job. This will give them an income that they can use to save for their car.
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Offer to match their savings. You can also help their teens save by matching their savings. This means that for every pound your teen saves, you will contribute a pound.
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Or offer to pay for part of the car. This can help the teen to reach their goal more quickly.
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Help them get the best deal on a car. Once the teen has saved enough money, they need to find a car. Help them by researching cars, negotiating prices, and helping them to find the best deal.
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Teach them about car ownership. It is important to teach teens about the responsibilities of car ownership. This includes things like insurance, maintenance, and repairs to ensure their car doesn’t cost them more than it needs to.
Related:
Teaching your teen about budgeting
Things to consider when thinking about buying your first car
How much to save before buying a car
Knowing how much to save is the key when helping a teen to buy their first car. Research shows the majority of parents contribute an average of £3,528, so this is a helpful figure to have in mind.
Related: How much should teens have saved?
The cost of driving lessons
It’s important to factor in the cost of driving lessons and passing a driving test before you think about buying a car. For driving lessons you will need an average of 45 hours (according to the RAC), and a one hour driving lesson costs approximately £30 per hour. That's £1350 in total. Teens will also need to apply for a provisional licence, which costs £34. A theory test costs £23, and taking a practical driving test on a weekday costs £62. All in all, that adds up to approximately £1469.
Whether to buy a new or used car
Buying a new car comes tend to come with a number of benefits. New cars are less likely to break down than used cars as they have not been subjected to as much wear and tear and they are also more fuel-efficient than older cars and this can save you money on fuel costs. However, new cars are also more expensive than used cars and have higher running costs, and often higher insurance as they are more expensive to repair.
Buying a car from a private seller
It can be cheaper to buy a used car from a private seller but before you start looking, do some research on the type of car you want and the fair market value for that car. This will help you to avoid overpaying for a car. When you go to look at a car, take the time to inspect it thoroughly. Look for any signs of damage, both inside and out. Take the car for a test drive and listen for any strange noises.
Ask the seller for the car's history report. This will show you any accidents that the car has been in and any outstanding finance. If you are still unsure about the car, take it to a mechanic to have it inspected. As for the price, don't be afraid to negotiate.
Buying a car from a dealership
There are pros and cons to buying a second hand car from a dealership. Pros include a wider selection of used cars and better financing options, which can make it easier to buy a car. However, dealerships often charge more for used cars than private sellers, and may try to upsell you with add-ons or services that you don't need.
How old does a teen have to be to buy a car with a co-signer/guarantor?
While there is no minimum age requirement for a teen to buy a car with a co-signer or guarantor in the UK, the majority of car dealerships will require a teen to be at least 17 years old. This is because the dealership will need to ensure that the teen has a valid driver's licence and that they are able to afford the monthly payments.
How you will pay for the car
Cash
Paying for a car in cash is the simplest and most straightforward option. You will need to have the full amount of the car's purchase price available in order to do this. This option is often the best if you have the available funds and want to avoid paying interest on a loan.
Loan
Taking out a loan to pay for a car is another common option, however, you should never take out a loan you can't afford to pay back. This involves borrowing money from a lender, such as a bank or building society, and then repaying the loan over an agreed period of time, with interest. This option can be a good way to spread the cost of buying a car over time, but it is important to make sure that you can afford the monthly repayments.
Hire purchase
This is a type of loan that is specifically designed for buying cars. With hire purchase, you will make a down payment on the car and then pay the rest of the price off over an agreed period of time, with interest. You will not own the car until you have paid off the full amount of the loan. This option can be a good way to get a car if you do not have a lot of money upfront, but it is important to make sure that you can afford the monthly repayments. If you can’t make the repayments the car will be reclaimed.
Personal contract purchase (PCP)
PCP is a popular type of car finance that allows you to drive a new car for a set period of time, usually three or four years, without having to pay the full purchase price upfront. With PCP, you will make a down payment and then monthly payments, which will cover the depreciation of the car and the interest on the loan. At the end of the agreement, you hand the car back, buy the car for an agreed price or part-exchange the car for a new one.
Leasing
This is a type of car finance that allows you to use a car for a set period of time, usually three or four years, without having to own it. With leasing, you will make a monthly payment, which will cover the depreciation of the car, the interest on the loan, and the cost of insurance, maintenance, and servicing. At the end of the agreement, you will have to return the car to the leasing company. The main difference between PCP and leasing is that with PCP, you have the option to buy the car at the end of the agreement, while with leasing, you do not.
What is the cost of owning a car?
Buying a car doesn’t put an end to the amount of money you need to cover motoring costs. Explain to teens that according to comparethemarket.com’s latest Young Drivers research on average, a 17 to 24-year-old driver will now pay £3000 per year to run a car (on top of the purchase price) for 12 months. This includes:
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Car insurance: You are required by law to have motor insurance to drive your vehicle on UK roads, and this is responsible for more than half of overall running costs (52%) for young drivers. The average annual car insurance premium for a young driver aged 18 is £1,845 for their policy average - almost triple the national average and £426 (30%) more than a year ago. This is the most expensive age for car insurance.
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Petrol: Though the price of petrol fluctuates, the research also shows that the typical annual fuel cost for a young driver was around £818 in January 2022.
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Car maintenance: MOT, and servicing is also costly especially for second hand cars. MOTs are currently £54.85 a year and full servicing of a vehicle can cost upwards of £155.
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Breakdown cover: Basic breakdown cover can cost as little as £6 a month, or around £70 a year, while more comprehensive policies (which covers more than third party insurance) can be as much as £2oo or so a year.
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Car Tax: The current annual flat rate of road tax for the 2023/2024 tax year is £180. There's a £10 annual discount for alternatively fuelled vehicles (hybrids, mild hybrids and plug-in hybrids).
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Depreciation: Cars depreciate (reduce in value) over time and this costs in terms of the fact what you pay for a car, will always be more than what you sell it for.
How can GoHenry help?
Teens can learn to save, balance a budget, pick up good spending habits, and prepare for a healthier financial life as an adult with a GoHenry prepaid teen debit card. The app allows them to set savings goals, have wages paid into their account from their first payday, onwards and learn faster with the in app Money Missions to help them boost their money skills.
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