How to Use Your Income Tax Return to Buy a Car
Are you hoping to buy a new or used car with your tax refund this year?
The average American receives $3,079 in income tax refunds, which can cover a large chunk of a vehicle down payment.
Whether you want to purchase or lease a car, truck or SUV, read on for tips directly from a former dealer.
Relevant Articles To Read:
Use Your Income Tax Return for a Vehicle Down Payment
Most experts suggest making a sizable 20% down payment when possible, as it can help lower interest rates and monthly payments.
For a $20,000 car, aim for around $4,000 as a deposit. Even lessees benefit from bigger down payments through reduced monthly fees.
Key Benefits of Using Tax Refund for Auto Purchase
- Qualify for better loan terms with larger down payment
- Lower monthly costs free up cash for other expenses
- Shorten finance periods to save on interest fees
- Chance to buy upgraded model with extra savings
Should I Buy New or Used With My Tax Refund?
While new model-year vehicles offer the latest features and technology, used vehicles make better financial sense.
With the average tax refund, you can likely find reliable used cars priced under $15,000.
As always, have a used car inspected first and run a vehicle history report.
Tips for Buying Used Cars With Tax Refund
- Research prices for desired used models
- Check dealership-certified pre-owned inventory
- Negotiate a fair price and financing terms
- Use a refund for the purchase price or down payment
What’s Better — Buying or Leasing My Next Car?
Leasing may be better if you:
- Want lower monthly payments
- Like getting a new car with the latest features every few years
- Don’t drive many miles per year
- Prefer not to deal with maintenance and repairs
Buying may be better if you:
- Want to own the car and build equity
- Plan to keep the car for a long time
- Drive a lot of miles annually
- Want the freedom to customize or modify the vehicle
- Don’t mind higher monthly payments to eventually pay off the car
Financially, buying a car is often the better long-term decision.
With leasing, you have a lower monthly payment but need to get a new lease every few years, so payments never stop.
When buying, payments are higher, but once you pay off the loan, the car is yours.
Paying Off an Existing Auto Loan
Another savvy way to leverage tax refund cash is paying down a current car loan’s principal balance. This cuts interest fees and speeds up the payoff timeline. Consider making one extra monthly payment or a lump sum contribution if permitted by the lender without early repayment penalties.
Vehicle Related Upgrades With Refund Money
Beyond a different car, utilize extra tax refund cash on:
- New tires for better mpg
- Brake system flush
- Audio system upgrade
- Comfier seat cushions
- Paint protection film
- Remote car starter
- All weather floor mats
Key Takeaways
- Average tax refunds allow for sizable auto down payments
- Weigh pros and cons of buying vs. leasing next vehicle
- Pay off existing auto loans quicker to save money
- Consider used vehicles to stretch tax refund dollars
- Use leftover cash for repairs, tires or upgrades
With proper planning and budgeting, your tax refund check can serve as an excellent catalyst towards acquiring your next new or pre-owned car, truck or SUV.
