Can You Get a Car Loan at 16?

by Craig Berman
If you're a teenager hoping to finance a car purchase, it may be a family affair.

No laws restrict car ownership at age 16. If you can afford to buy a vehicle, there’s no reason why you can’t. Financing one is another story, however. When you’re younger than 18, the legal system isn’t weighted in your favor, meaning you’ll almost certainly need assistance if you need to borrow money to buy your new set of wheels.

A Minor Problem

At 16, you’re considered a minor, which means you can’t enter into legal contracts without parental consent. Until you’re 18, any contract you sign can’t be binding, so it isn’t enforceable. Not surprisingly, banks are unwilling to lend money without a binding contract, which means getting a loan on your own isn’t likely to happen. The exception is if you can get a legal declaration of emancipation from your parents, but that generally requires a lawyer, money to pay the lawyer and months of time to wind its way through the courts with no guarantee of success.

Co-signer Wanted

Getting a loan at 16 requires a joint borrower, usually a parent. It also may require you to document your current income and a steady history of earnings. The bright side is that having a co-signer likely will help you get a lower interest rate than you otherwise could have managed, assuming your co-signer has a solid credit history. You also could make an agreement with your co-signer to return to the bank once you turn 18 and refinance the loan in your own name.

Sticking Within the Family

Another option is to explore private loans by asking a family member to spot you the needed cash, particularly if it’s for a used model that doesn’t require as much of an outlay. That doesn’t build up your official credit history, but it does get you the money you need and likely provides payment flexibility. Draw up an agreement as you would for any commercial loan, documenting the amount borrowed, the interest rate, the monthly payments and the length of the loan, as well as any other payment terms.

A Cheaper Car?

Before entering into any loan agreement, whether formally with a bank or informally with a family member, sit down and crunch the numbers. At 16, you’re getting to the point when life can get expensive, particularly if you plan to attend college after you graduate from high school. Maxing out your budget to get a dream car may leave you without enough money to do the things you want to do once you get behind the wheel. You may find that it’s a better financial option to buy a cheaper car -- one that doesn't require a loan -- even if it doesn't have the same features as your dream machine.

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