You cannot get a car loan at 16, though that does not mean you cannot get the car that you need.
In the United States you are not considered an adult until you are 18 years old. In some states you must be 18 and out of high school. You cannot enter into a legal contract (like a loan) unless you are an adult. These laws are for your protection, even though they are frustrating you at this time.
What if You Have a Co-signer?
Many people wonder if they can finance a car at 16 or 17 years old with a co-signer. A co-signer is someone who signs the loan with you, legally obligating themselves to repay the loan if the primary borrower defaults (fails to repay it). Unfortunately, having a co-signer will not allow you to get approved for a car loan before you’re 18, even if the person has stellar credit.
What To Do?
Since you are not considered an adult, you cannot be a cosigner on a loan either, so the easiest way to get a car loan at 16 is to have your parents obtain one for you, in their own name. The usual lender guidelines will adhere. Here are a few of those guidelines so that you will understand them when you are an adult.
- Loan to value (LTV)…between 85 and 115 percent.
- Age of vehicle…less than 8 years old.
- Term of loan…36 to 72 months.
- Miles on vehicle…under 100,000
- Down payment…at least 10 percent or $1,000.
- Time on job…two years.
- Time at residence…again, two years.
- Monthly income before taxes…depends on lender, usually $1,400 minimum.
- Credit score/profile…540 or above.
- Total debt to income including new payment…most lenders look for less than 36 percent, but some specialty lenders may stretch that to 45 percent.
The Responsibility of Making Payments
Just remember, if one of your parents obtains a car loan for you, and you are responsible for making the payments, the health of their credit is in your hands. If you make payments late, or God forbid fail to make them, you could do terrible damage to your parent’s credit score. This could make it difficult for them to get a job, to get an affordable mortgage, and maintain low insurance premiums, and to secure low interest rates on credit cards. In other words, you could do grave damage to their finances if you don’t stay on top of the payments.
Once you turn 18, you may want to refinance the car in your own name, so that you can begin building your credit. The interest rate may be higher, but if your parent agrees to co-sign at this time (and they probably will if they were willing to obtain a loan for you in their own name), then your interest rate should be reasonable.