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Purchasing a Vehicle with A Tax Refund in Phoenix, AZ

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Purchasing a Vehicle with Tax Refund

The beginning of the year is a time when many people think of buying a car. It’s not because spring or summer is coming, it has to do with something else that’s on the way: their tax refund. So, should you use your tax refund to buy a vehicle? In certain situations, the answer is an enthusiastic “yes or in other cases, it’s a “no.”

A tax refund is a great way to buy a more expensive car or reduce monthly payments. It also can be the first step in rebuilding damaged credit. The average tax refund in the United States this year is predicted to be  $2,727. The amount varies widely by state and also your income, but that refund is going to make a sizable dent in your used car purchase.

 

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Don’t Spend it All on A Car

An important reminder is not to use all of your return on the down payment. Try to spend no more than 90 percent of your refund so you can cover any unexpected expenses. Set aside some of the money for transaction fees and an inspection, which is important regardless of where you buy a used car .

Need vs. Want

Consider how important your vehicle is to you. Does it need to last a long time for you? For example, once you’ve paid off the loan, will you keep driving it for a few years or will you be trading it in for something else?  If you need to purchase a car that needs to last you a few years, you may need to consider purchasing a newer used vehicle. 

Once you’ve arranged financing, check to see if lender will allow you to pay off the loan early without penalizing you. While continuing to make your monthly payments throughout the year, take a portion of any future tax refunds you receive and apply it to your loan. In turn you will pay off your car sooner and pay less in interest fees.

Rebuild Your Credit

You may also use your tax refund to rebuild your credit. In this case, look at your tax refund being 20 percent of your down payment or more. Make sure the financing  company you arranged reports payments to the major credit bureaus. You may not be driving the latest model or luxurious vehicle, but you will be repairing your credit history with faithful payments.

A Refund is Not a Windfall

A tax refund isn’t a windfall, think of it as a forced way of saving money where you stored it for 12 months. If your finances are tight, try and avoid using your refund for a used car or truck you don’t need. Although a fancy sports car sounds like fun, your tax refund should be used for practical reasons. 

Remember that patience is a virtue. The demand for used vehicles peaks in January, February and March. Can you wait until April 1? By then, most people who are using their tax refunds to buy a used car will have done so. Typically, only people who owe money wait until April to file their returns.

One last practical bit of advice is to wait for your actual refund. Don’t borrow against it to make your down payment. That’s going to diminish the spending power of your refund.


If your credit is suffering from financial mistakes made in your past, look no further than our Buy Here Pay Here Financing Department. We work with people like you who have less than perfect credit or no credit at all to ensure that you get a fair deal on a vehicle that you want to drive at rates that are relatively fair. The best way to find out about interest rates and payment is to contact our Finance Department to discuss your options. In fact, you can pick up the phone and Call 602 331-3333 and one of our Service Managers can have you behind the wheel of a vehicle sooner than you think. Our auto and truck Finance Office professionals are friendly and willing to work within your budget to find you a vehicle that best suits your needs.

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