Can You Finance a Car When You’re Under 18?

Securing a car for a young person under 18 presents unique challenges due to legal restrictions on contracts. While teenagers often desire independent transportation, financing a vehicle for them involves specific legal and financial considerations. Understanding these aspects helps parents, guardians, and teenagers approach car acquisition responsibly.

Legal Restrictions on Minors and Contracts

Individuals under 18 lack the legal capacity to enter binding contracts. Most states consider 18 the age of majority, classifying individuals below this age as minors. This impacts their ability to sign agreements like car financing loans. Contracts made by minors are “voidable,” meaning the minor can cancel the agreement before or shortly after reaching adulthood.

This voidable nature makes lenders hesitant to offer loans directly to minors. A lender faces significant risk because a minor could legally walk away from the financial obligation, leaving the lender with potential losses. While exceptions exist for necessities like food or shelter, a car loan is not typically categorized as such. Therefore, direct car financing for someone under 18 is impractical due to legal safeguards protecting minors.

The Role of a Co-Signer or Guarantor

Given legal limitations, involving a co-signer or guarantor is the most common method for an underage individual to secure car financing. A co-signer is an adult who takes equal legal responsibility for loan repayment alongside the primary borrower. Their creditworthiness and legal capacity enable loan approval by mitigating lender risk.

If the primary borrower fails to make payments, the co-signer is legally obligated to cover missed amounts or the entire loan. This shared responsibility means the loan appears on the co-signer’s credit report, and late or missed payments negatively affect their credit score. While similar, a guarantor assumes responsibility only if the primary borrower fully defaults, whereas a co-signer is liable for any missed payment immediately.

Alternative Approaches to Car Acquisition

If direct financing with a co-signer is not feasible, other avenues exist for a teenager to acquire a vehicle. A parent or legal guardian can purchase the vehicle outright, placing the title and registration in their name. This bypasses the minor’s inability to enter a loan contract or register the vehicle independently.

Once an adult owns the vehicle, they can establish a private payment arrangement with the minor. This informal agreement allows the teenager to contribute towards the car’s cost without formal loan obligations.

Another option is saving money to purchase a less expensive vehicle with cash. While a minor can legally buy a car with cash, a dealership might prefer a parent present due to legal complexities. The vehicle would also need to be registered and insured by an adult until the minor reaches legal age.

Practical Considerations for Underage Car Owners

Beyond acquisition, practical considerations arise when a car is obtained by or for an underage individual. Car insurance is mandatory in all states, and insuring a young, inexperienced driver results in higher premiums. Most insurers require a teen driver to be added to a parent or guardian’s policy, or for the parent to co-sign a separate policy, as minors cannot purchase insurance independently.

Vehicle registration also involves adult involvement; while some states permit a minor’s name on the title, a parent or guardian must often be listed as a co-registrant. Ongoing financial responsibilities include fuel, routine maintenance (like oil changes and tire rotations), and potential repairs. These recurring costs can range from hundreds to thousands of dollars annually, emphasizing the need to understand financial commitments before acquiring a vehicle.