The down payment you make for your newly purchased used car should be at least 20 percent of the vehicle’s purchase price. Many car shoppers have incomes that support monthly car financing payments, but are unable to set aside enough money for the down payment. The refund you get from the IRS after filing your income tax returns can go a long way towards making a sizable down payment easier to afford.
Make a Budget Plan
The first step in effectively using your tax refund as a down payment on a used car is knowing what your monthly payment budget would be, which will indicate the high end of the sticker price budget you can afford. An ability to make a 20 percent down payment on a more expensive used car thanks to a tax refund does not mean you can make reasonable monthly payments towards the financing. A reasonably-priced used car in good working condition can be financed with affordable monthly payments with a reputable dealership, especially if you can make a substantial down payment. Be realistic and make a budget plan before shopping around at different dealerships.
Higher Down Payment, Lower Monthly Payment
An important thing to remember about using your tax refund as a down payment on a used car is that larger down payments on smaller ticket prices mean lower monthly payments. A larger down payment will reduce the principal amount on which the car loan is based. Even if you can manage to squeeze the higher payments of a more expensive car into your budget, consider making a down payment that is more than 20 percent of the cost of the car in order to own your used car sooner.
Have the Refund First
Never start shopping for a used car before you actually have your income tax refund in your hand, if you plan on using the refund as your down payment. Patience and careful planning while you wait for your tax refund will ensure you have the money you anticipated having and the best deal on the right used car for your life. This will also keep you from getting your heart set on a car you can only afford with a certain amount of tax refund, only to have some issue with your tax return prevent you from making the necessary down payment.
A refund from income tax returns can be used towards a down payment on a used car. With planning, patience and a realistic budget, even a minimal refund can be used effectively towards a used car down payment.
*Image courtesy of freedigitalphotos.net
