Tax season is coming up! For many people, that means extra money in their pocket thanks to tax refunds. This windfall could be your ticket to an auto loan if your credit is less than perfect.

Tax Refunds and Cash Down

Having a down payment for an auto loan is always a great idea – even if you have good credit. For many borrowers, bringing cash to the table is a requirement to qualify for vehicle financing. Bad credit borrowers are almost always required to have a down payment to qualify for a car loan.

Should I Buy a Car During Tax Season?It’s not always possible to save up thousands of dollars for a down payment, especially now thanks to COVID-19. It’s more important than ever to have a rainy day fund, but it’s also important to have reliable transportation! If you can’t afford to save a lot of cash this year, then consider using your tax refund, like many Americans, to help with your next auto loan.

Research shows that as much as 9% of taxpayers plan to use their tax refund for large purchases, such as a vehicle or home. According to Santander, up to 14% of millennials plan to use their tax refund for big-ticket items. A survey from eBay states that around 37% of millennials plan to use their tax refund for a car purchase.

You may be required to put some cash down if your credit isn’t perfect, and your tax refund could be the solution this tax season. If you think you’re in store for a tax refund this year, consider using that extra money as a way to meet a down payment requirement. You could also combine it with other windfalls such as your stimulus check, and/or the money from an equity trade-in to meet the stipulation. The more money you put down the more you increase your chances of qualifying for an auto loan.

Are There Car Deals During Tax Season?

Tax season is usually over around Memorial Day (in May), which is another great time for car deals and incentives. If you hold on to your tax refund or wait a little longer to file your taxes, then you could wait until Memorial Day sales start rolling in – typically at the beginning of April.

During spring, dealerships are usually eager to shake off the snow and move some inventory. Often, automakers run spring sale events starting in March. Tax season is also a way for dealers to sell off their winter stock surplus.

Interest rates offered also tend to lower during tax season – typically 1% to 2% lower than average. This is because dealerships expect buyers to walk through the doors with tax refunds in hand to meet down payment requirements. If you’re looking to get the lowest interest rate you can, which is often a concern for bad credit borrowers, springtime tax season could be the way to go about it.

Interest rates are also lower than average this year in general due to the pandemic. The prime rate was reduced to increase spending, which means rates for everyone else are generally low right now. According to our dealership network, pre-pandemic, bad credit borrowers were averaging a 15% interest rate on auto loans. Right now, interest rates are around 13% on average for poor credit car buyers in our network. Combine that with the fact that interest rates are typically lower during tax season, you could qualify for a decent interest rate despite a poor credit rating.

How Much Should I Put Down on a Car?

How much you may be required to put down can depend on the price of the vehicle you’re looking to buy. Most subprime auto lenders require at least $1,000 or 10% of the vehicle’s selling price.

The more expensive the car you want, the more you’re likely to need to put down. With the $600 stimulus checks rolling out, and tax season upon us, many borrowers may be able to meet this requirement with the help of their tax refunds and without having to save for months on end.

If you’re still concerned about higher interest rates due to your credit score, then consider putting down as much as you comfortably can. A larger down payment means fewer interest charges. Most car loans are simple interest loans, meaning you’re charged interest based on the balance you owe. A down payment gets directly applied to the car’s selling price, which means you don't have to borrow as much money – smaller loan, less interest charges to pay!

Down payments also lower your monthly payment. If the auto loan you're looking at means a high monthly payment, then putting more cash down could get the car payment within your budget. You can also use our auto loan calculator to see how much you might need to put down on a loan. Playing around with this resource, using different loan terms and amounts can be useful when creating your auto loan budget and savings plan.

Your Next Step in Auto Financing

Having a down payment is just one part of qualifying for an auto loan. It’s possible to have a large down payment and still get turned down for vehicle financing if your credit score is poor. Most traditional auto lenders prefer borrowers with a good credit rating, and down payment may not be enough to overcome a tarnished credit history – but we want to help.

Here at Auto Credit Express, we know how hard it can be to find bad credit lending resources. That's why we’ve created a hassle-free way to get connected to a dealer that’s signed up with bad credit lenders! We’ll look for a dealership in your local area that’s equipped to work with poor credit after you complete our free auto loan request form. There’s never an obligation to buy anything, and we’ll get right to work finding a dealership that can assist with bad credit situations. Don’t delay and get started today!