With the Christmas season approaching, thousands of Americans are considering one of the largest and most sought after Christmas presents of all. A brand new car can be a great Christmas present, and the pageantry behind its presentation is ingrained in the American popular culture memory. Sitting in the driveway with a bow on it, or in the garage covered in wrapping paper, a new car might seem like the ideal present. However, there are a few pitfalls to consider before purchasing a new car as a gift for someone else.
Constant Daily Expenses
When you buy someone a new car, you are basically buying them a litany of daily expenses that they will have to pay. Cars are great for personal freedom, but they require gas, maintenance, parking fees, tax, title expenses, registration, and more. Over the lifetime of a new car, the owner will probably pay a sum equal to the car’s value in various expenses. Unless you are planning to foot the bill for all of these daily expenses, make sure your gift recipient can afford the responsibilities that come with car ownership. Don’t give someone in a fragile economic situation a car; it could be the tipping point that sends them into debt.
Almost 80% of all car purchases are financed, which means most people who give cars to their loved ones are going to be making car payments for quite some time. When you give a car to someone, make sure you have a plan for the car payments. If the car is going to be put in the recipient’s name, they will become responsible for the payments. If the car will be in your name, just how much of a gift are you really giving? If you are giving a car to a spouse or a significant other, consider what might happen if your relationship ends. Who will get the car? It is possible that the gift recipient will be able to keep the car while you are still stuck making the payments for it.
Lost Credit Opportunity
For students and teenagers, buying a car can be a frustrating experience because of their limited credit histories. Instead of giving a car to these young people as a gift, consider helping them cosign for a car instead. Not only will this teach them valuable lessons about car buying and lending, but it will also help establish their credit for future purchases. You can take the money that you were going to spend on their gift and offer it as a partial down payment, or you can put it into savings so your child will have a fallback source of money to pay the car payments if they are unable to continue.