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Should you use your tax refund to buy or pay-off a used car?

Posted by Shabana Motors - 20 January, 2020

shabana-used-car-tax-refundUsed Cars and Tax Refunds

Purchasing a car, whether a new or a used one, is the second most significant expense in your life. A vehicle does not come cheap, and people have to cut out a substantial chunk of their savings to get their hands on a ride!

There are different ways you can finance a car purchase if you do not have such a considerable amount in your savings. You can apply for a loan at a bank or opt for hard-money lending if your credit score is not good or choose the leasing option.

There is another way a lot of people are paying for their car – tax refunds!

A tax refund is not “accidentally-found-money,” it is your money that you are getting back. It is your money, and you need to decide how to use it. An amount equal to $3000 is a lot, and you can use it to make your car-dream come true.

There are two ways you can use the tax refunds and get your hands on a new ride. You can either pay the amount as a down payment and reduce your monthly payments or choose to pay-off other debts so that you have a window to repay the car loan!

Using Tax Refunds to Pay for the Car

As the tax season approaches, the car dealerships have begun advertising about how car buyers can use the tax refunds to make their car-dream come true. No matter what others say, it makes sense. Tax refunds are an extra chunk of money that can help you stabilize your financial situation.

The Down Payment

If you have been delaying your decision to purchase a car just because your financial situation is not allowing you to make such a big purchase, it is time that you start thinking about it. You can use tax refunds to pay your car’s down payment.

According to the Internal Revenue Service, the average tax refunds every American is subject to is $3000. It is sufficient to pay the ideal 12% down payment of a used car. Paying this amount as the down payment will significantly lower the monthly auto payments. You can save a good amount on the monthly payments when you use the tax refunds with your savings.

Making the Monthly Payments

Another way you can use tax refunds to pay for the car is by getting a head start on your payments. You can avoid the down payment altogether and use the money to make the monthly payments. The amount you receive as a tax refund can easily help you make monthly payments for almost a year.

A used car is much lower in price and comes with a lot of other advantages such as low insurance costs and maintenance costs. Most importantly, these vehicles have already undergone significant depreciation, so you do not have to worry about it. It is due to these reasons, investing your tax refunds on a used car is a smart option.

Purchasing a Used Car

Now that you have your tax refunds’ cheque in your hands, it is time that you start searching for the perfect ride. As this is part of your hard-earned money, finding a good deal on a used car is crucial. You do not want to spend your money in the wrong place, right?

Start with Research

When it comes to purchasing a used car, thorough market research is vital if you wish to make the right choice. Decide which model you want to settle for and look at what price the dealers are offering. You can even look for other models that offer the same mileage and features, just for comparison. If you are unable to find the right dealership, you can also consider a private seller. Enlist all the options that you think are perfect for you before you reach your final decision.

Compare and Inspect

Once you have a list of all the dealerships or private sellers, selling the model you are looking for, it is time to compare after inspecting each of these options. Taking an automobile technician along with you on the inspection is an excellent idea as they can help detect the issues in the car. Do not forget to take a test drive, as it is a crucial step in the process of purchasing a used car. Go through the vehicle history report and make sure you are not getting into the mess of a stolen car.

Paying off the Debts with Tax Refunds

Paying the down payment of a used car or its monthly payments is one option, but there is another way you can use the tax refunds. Instead of paying the down payment or monthly payments, you can pay off the debts.

Before you get your hands in another loan, you can try to reduce the monthly debt payments by paying off any long-standing debts. These can help you with getting a car loan at better interest rates. It is a great option for you if you have a good credit record. It is a smart move if you think you will not get many good loan options on your existing debt situation.

However, if your credit history is not the best, you can use your tax refunds to make the down payments. It is a wise choice for you if you do not have a lot of monthly debt payments, or you think that making a huge monthly payment is not an option for you in the near future.

Topics: Used Cars, buy used car, tax return

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