Can a 16-Year-Old Buy a Car With Cash?

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Bethany Hickey is a graduate from the University of Michigan-Flint, with a bachelor’s in English-Writing. She is a content writer for Auto Credit Express, CarsDirect, and many other automotive blogs, as well as the Poetry Editor for UM-Flint’s writing magazine.


, Contributing Writer - November 4, 2020

A 16-year-old can buy a car with cash, but an auto loan is out of the question until the teenager is 18 years old. A minor can’t register a vehicle in their name, or purchase car insurance by themselves. However, there's a way to help out your teen if they want to purchase a vehicle on their own.

Teens and Car Buying

If you’re gearing up to get your teenager a car, you’re going to be the legal owner of it until they can put the title in their name when they turn 18. A minor can’t enter a contract until they’re of age, and they can’t purchase auto insurance until then, either.

To fix this, most parents simply register a vehicle in their own name, list the teen as a driver on the car, and add the vehicle to their current auto insurance policy. The teen can simply hand you the cash for the car, so you can buy it and register it in your name until they’re at least 18 years old.

Even if your 16-year-old hands you cash for the vehicle, you can’t use the money to take out an auto loan for them. This is considered a straw purchase deal, since the teenager wouldn’t be able to get a loan for themselves. A straw purchase is fraud, and it means that you're taking on a car loan for someone else, with no intention of driving it. In financing, the primary borrower is typically listed as the primary driver, as well.

Not only is taking out a loan for someone else considered fraud, it may not be the best idea for a teenager, either. Young drivers can be rough on vehicles – this puts your money and credit at risk if something happens to the car while you still owe on it.

Tips on Saving Up for a Teen’s First Car

You could have your new driver pay for the entire vehicle themselves. However, it can be hard for some teens to save a few thousand dollars for a decent car. If you don’t want to pay for the vehicle all by yourself, and still teach your teenager some responsibility, you can use these tips to help them save up:

  • Dollar matching – If your teenager saves $2,000, you could match the $2,000 so they can get a $4,000 car. This is good for both parties since you get to teach your kid the value of their first vehicle since they had to work for it, and you don’t have to shell out all the money. The more they save, the more you match, so it’s a major incentive for your teenager to work hard and get a nice first car.
  • Plan a budget – Talk about budgeting and what goes into the purchase and ownership of a vehicle with your teen. There’s more to car ownership than just buying the vehicle! There are costs involved with insurance, maintenance, and fuel which your teen needs to be aware of and plan for. Establish who is paying for auto insurance, oil changes, tires, and all other costs ahead of time as well.
  • Have a goal – If you plan on paying for the car yourself, how much you spend is up to your discretion. There’s not a hard-and-fast rule on how much you should spend on your teen’s first vehicle, but most say you shouldn’t shell out more than $10,000. Since a 16-year-old is a new driver, don’t expect that car to last forever. Young drivers can be reckless and they’re simply inexperienced. Be sure to discuss with your teenager the value of this vehicle, and that driving comes with its own set of risks.

While you likely don’t want to spend thousands upon thousands on your 16-year-old’s first car, it’s important to look for something that’s reliable with a high safety rating. The IIHS and Consumer Reports worked together to create a list of vehicles with high safety ratings for teenagers this year.

Consider Upgrading Your Own Car

There’s also the option of handing down your old car and getting yourself a newer one. If your vehicle is older, used, and has seen some mileage but you know it can get the job done, then consider upgrading yourself instead of your teenager. This becomes easier if you already own your car outright, since you can just list your teen as a driver and keep the vehicle registered in your name.

However, some borrowers can find it difficult to get approved for an auto loan if they have less than perfect credit. While teenagers can’t get a loan by themselves until they’re 18, we can help adult bad credit borrowers find the car-buying connections they need.

Here at CarsDirect, we’ve been matching borrowers to dealerships with bad credit lending resources for over 20 years. To get connected to a dealer in your area that’s signed up with bad credit lenders, complete our free auto loan request form.

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, Contributing Writer

Bethany Hickey is a graduate from the University of Michigan-Flint, with a bachelor’s in English-Writing. She is a content writer for Auto Credit Express, CarsDirect, and many other automotive blogs, as well as the Poetry Editor for UM-Flint’s writing magazine.


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