Happy tax season! If you’re expecting a W-2 or already have one, you may be wondering how you can use your upcoming tax refund to make a large purchase, such as a car. If you’re not in the market for a vehicle right now, you could use it on your current auto loan, too.
Option 1: Use Your Tax Refund to Buy a Car
If you’ve been thinking about financing or leasing a new car, you can use your tax refund as a down payment or capitalized cost reduction. In financing, a down payment can help lower your monthly payment and reduce interest charges, making the auto loan more affordable. Putting money down also helps you get approved if you have poor credit. In leasing, a capitalized cost reduction (the down payment in a lease) helps you pre-pay the lease and lowers the monthly payment, but it won't help you save money in the long run.
A down payment is extremely important if you have bad credit and want to finance a vehicle. In fact, it’s usually required by subprime lenders. If you have a tax refund that covers the down payment requirement, you can use that. You can also apply any trade-in equity, or combine the refund with trade equity to make the down payment larger. It all comes down to what the lender’s down payment requirements are, and how big of a refund you get.
Option 2: Use Your Tax Refund on Your Current Car
Although tax season is a popular time to buy a car, you may not want to use your tax refund on a brand new set of wheels. If you’re looking to make your current auto loan more affordable, you can use your tax refund in two ways:
- Refinance your current loan – If you initially took out a bad credit car loan and got a higher than average interest rate, you can use your tax refund to reduce what you owe, which can help when you refinance your current loan for a lower monthly payment and/or a better interest rate.
- Pay down the current loan – Your tax refund can always be used to make an extra payment on your loan. This can help you save money in interest charges. Or, if you currently have negative equity in your vehicle, you can get yourself out from underwater by using your refund to pay down the loan balance.
Need Help Finding a Dealer?
At the end of the day, how you choose to use your tax refund is up to you. If you want to use your tax refund toward a car, but worry your bad credit is in the way, we want to help. Auto Credit Express is teamed up with dealerships all around the country that are experts are working with challenging credit situations. Let us take the hassle out of your search for a dealer by connecting you with one in your local area. Get started by submitting our free and secure auto loan request form today.