Today marks the beginning of tax season, as the IRS has officially begun accepting tax returns, which means it's almost time for your tax refund. If you’re expecting a refund, you may be thinking about using that money to help pay your current bills. If you’re debt free in the new year, and are considering a car purchase, your tax refund could be applied toward that.
Using Your Refund to Buy a Car
There are many different ways you could use your tax refund. If you plan on putting it toward your next vehicle, one of the best options is to use that money for a down payment. Down payment requirements vary by lender, but subprime lenders generally require 10 percent of the car's selling price or $1,000 – whichever is less.
Using your tax refund on a down payment has many advantages. A down payment can help you get approved if you're dealing with less than perfect credit. Also, it can reduce the loan principal, which means lower monthly payments and paying less in interest charges. Additionally, a down payment can help you avoid negative equity or even allow you to shorten your loan term.
Using Your Refund on Your Current Car
If you have a current car loan, and want to put your tax refund to good use, here are two options to consider:
- Pay down existing loan – If you’re currently upside down on your loan, which means your loan balance is currently higher than what your vehicle's worth, you can use your tax refund to reduce your negative equity. Depending on your situation, you can either pay down the negative equity or make an extra payment or two.
- Refinance your current loan – If your interest rate is higher than you'd like, your tax refund can be used to eliminate your negative equity so you can refinance your current loan. When you refinance, you typically lower your monthly payment and can land a lower interest rate if your credit has improved since you've taken out the loan.
Think Before You Spend
Getting a tax refund is exciting. Some of the hard work you’ve done over the past year will be back in your wallet. If your refund gives you the money you need, but you find that your credit is in the way, let Auto Credit Express help.
We connect car 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.