Tax season is here, which means many Americans are expecting a tax refund. If you’re expecting a tax refund, you can use the money you get toward paying off debts, pocket it, or use it to buy a big item such as a car. If you want to use your tax refund toward your next vehicle purchase, keep reading to find out how you can use it to make the overall cost of a car more affordable.
Buying a Car with Tax Refunds
One of the best ways you can use your tax refund on a vehicle is by using the money to make a down payment. A down payment isn’t always required, unless you’re dealing with a subprime lender. They typically require a minimum down payment of $1,000 or 10 percent of the car’s selling price, whichever is less. A good rule of thumb, however, is to have a down payment that’s closer to 20 percent.
There are many benefits to a bigger down payment. For one, the more money you put down, the better your approval odds are. Second, a sizeable down payment helps lower the overall cost of the loan by decreasing the loan amount, which lowers the monthly payment and the overall interest charges. Last but not least, you can avoid being upside down on the auto loan with a bigger down payment, or even shorten the loan term.
Using Your Tax Refund on Your Current Vehicle
Even if you’re not in the market for a new vehicle, you can use your tax refund to help pay for your current car. Once you get your refund, you have two options to consider if you want to use it toward your current vehicle:
- Refinance – If your interest rate is high, you can use your tax refund to eliminate negative equity and refinance for a lower monthly payment and possibly even a better interest rate. Make sure your credit score has improved since taking out the original loan, as you can’t refinance for a better interest rate if your credit hasn’t improved.
- Pay down the loan – If you’re currently underwater on your auto loan, you can reduce or even remove the negative equity by paying down the loan balance.
The Bottom Line
Once you get your tax refund, make sure you weigh all of your options before taking the plunge to buy a new vehicle. Use our Car Loan Estimator and Payment Calculator to see how using your tax refund as a down payment can benefit your next vehicle purchase. If you received your tax refund, and are ready to use it toward your next car, but worry your credit is standing in the way, let Auto Credit Express help.
We connect buyers to local dealerships that are equipped to handle challenging credit situations. Save the time, hassle, and energy of trying to find a dealer that can help you on your own. Get started by submitting our free and secure auto loan request form today.