When tax time rolls around, many people consider using their refund on a vehicle. There are several ways that a tax refund can help you, but if you're looking for your next auto loan, one of the most effective ways to use your refund can be on a down payment.
Down Payment Requirements for Auto Loans
Down payment amounts don't usually follow a hard-and-fast rule. Usually, the down payment you're required to make on a car loan depends on your situation, your credit score, the vehicle you choose, and a few other factors.
If you have good credit, there may not be a down payment requirement, although putting money down is typically a good idea. With bad credit, on the other hand, lenders almost always require a down payment.
The amount you need can vary by lender. When you're working with a subprime lender that specializes in helping people with credit issues, the minimum down payment requirement is generally $1,000 or 10% of the car’s selling price, whichever is less.
Using Your Tax Refund as Money Down
Since you're usually required to put money down as a bad credit borrower, a tax refund can be a huge advantage. As someone with poor credit, a down payment is a wise move because it lowers the cost of your loan and helps you save money throughout your entire loan term.
If you're expecting a large refund, you could lower your monthly payment even more by putting down more than required. You could also split the amount you get back and use some for a down payment, and save the rest for unexpected repairs. Or, use some as a down payment and the rest to cover your first payment or two.
If you're not expecting a large refund, you can combine your refund with cash or trade-in equity to come up with the required amount.
Using Your Tax Refund on an Existing Vehicle
If you're not looking for another vehicle at the moment, there are many ways you can use your tax refund on your current car. Setting the money aside for the future, for items like maintenance and repairs, is always a solid choice.
You could also pay down an existing auto loan and save money by reducing the balance, therefore lowering the amount you have to pay in interest charges. If your refund is big enough, you may also be able to use it to pay off your loan entirely.
Additionally, there are other good ideas for your refund when it comes to your vehicle. If you purchased or are financing a used car, tax refunds can be used to purchase warranty coverage, or pay for maintenance items that may be necessary on a used vehicle, such as tires and brakes.
If you recently purchased a new car, you can use the refund for something other than making payments. A refund can be useful on items such as paying for auto insurance, or supplemental insurance, such as GAP insurance.
Guaranteed asset protection insurance, or GAP, covers the difference between what you owe on your loan and the value of the vehicle. This type of coverage is especially helpful at the beginning of a new car loan.
Getting the Auto Loan You're Looking For
There's no limit to the things you can do with a tax refund, and using it for your vehicle is generally a good investment. You've worked hard for your money, now it's time for your money to work for you. If working for you means using it toward a down payment on an auto loan, then we want to help.
At Auto Credit Express, we’re teamed up with a nationwide network of special finance dealerships that have the lenders ready to work with people in unique credit situations. If you're struggling to find a dealer near you, save yourself the stress of searching by filling out our fast and free car loan request form now. Get started now!