A 17-year-old is legally considered a minor in all 50 states. Being a minor excludes a 17-year-old from many "adult" activities, and one of those activities is signing a legal contract. Since a car loan constitutes a legal contract, a 17-year-old cannot sign a car loan without a parent or guardian also signing the loan as a cosigner.
Ownership Limitations
One important aspect in car financing for minors is the limitations he or she will face in actually owning a vehicle. In most states, a 17-year-old cannot be the legal owner of a car. However, there are certain exceptions wherein a person under this age could possess a vehicle title if she has proven financially and legally responsible. For example, an emancipated minor may be able to enter a contract if he has an income history and credit history. Even then, however, a cosigner may be necessary if the minor does not have enough resources to get the loan.
Loan Limitations
If a 17-year-old gains state approval to own a car, the next step will be financing the vehicle, and this presents another hurdle. A financial institution cannot enter a contract with a minor, and since 2009 it cannot market loans to minors. As a result, a parent or guardian must be present to cosign on the loan. In actuality, the adult party will be the primary borrower on the loan.
Potential Solution
One option for a minor looking to own a car is to go through the process with a parent or guardian first. Once he turns 18, he can then refinance the loan to remove the cosigner's name, and also remove the cosigner from the title. Removing a name from a title is straightforward; removing a name from an auto loan can be more involved.
Refinancing Challenges
When a young person first turns 18, she will have no credit. Since she has been excluded from taking loans in the past, it was impossible to build a credit score. The only possible credit reports will come from co-signed loans. Further, this person is not likely to have a full-time job with a high income. As a result, it can be very costly for a young person to refinance a co-signed loan to her name.
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