An influx in cash thanks to your income tax refund can be used to buy that pre-owned car you’ve needed for a while. Dealerships are prepared for shoppers looking to use their income tax refunds toward the purchase of a used car. There are both benefits and drawbacks to using a tax refund to help buy a car. You should consider all the factors before spending the money.
Realistic Budget
The most important thing to consider before using an income tax refund toward the purchase of a used car is what your realistic ongoing budget is for financing payments. A sudden influx of cash can make some people lose sight of what their normal income looks like. After spending a tax refund on the used car’s down payment, you will need to keep up with monthly loan payments until you fully own the vehicle.
Preparing for Financing
Unless you get an incredible deal, the practical used car you purchase from a reputable dealership will need to be financed. A car loan that is kept up with, meaning monthly payments are made on time, may be considered good credit-building debt, but it is still new debt you are responsible for paying back. Along with your tax return, you should gather important financial information like your credit score and paystubs before visiting the dealership.
Patience
The IRS is not going to take back your tax refund if you take your time and exercise patience while shopping for a used car to purchase. It is understandable to feel excited and anxious to spend the money you get back after filing your taxes, but it is never a good idea to rush into any significant purchase, especially when loans and financing are involved. Be sure you are buying the used car that best suits your needs at the best deal you can find before signing anything.
Maximizing Down Payment
The recommended down payment for a car is around 20 percent of the total principal purchase price. If your tax return is more than 20 percent of the cost of the used car you are buying, and you have no other bills or expenses that you need to address with that money, you should always increase the down payment before you start thinking of a more expensive car option. A higher down payment means less owed on the car and less paid in interest over time.
Your tax refund can be put toward the purchase of a used car that you need. By staying patient and finding the best deal on the right used car, you can put your income tax refund to good use.
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