Posted Tuesday, Sep 14, 2021
A down payment can be a substantial help for securing an auto loan and decreasing your monthly payments on a vehicle that you love. For buyers with poor credit, a tax return is one great option that could otherwise be difficult due to financial hardships or getting back on financial track. According to the Internal Revenue Service, the average federal tax refund each year is about $3,000. Whether a partial amount or the full amount goes towards a car at Premier Used Cars and Trucks, that is a significant boost to help put you in the car you love today.
Once you know you’ll be receiving a tax refund, you can start planning what to use it for. If you’ve decided you’ll be purchasing a car from Premier Used Cars and Trucks, the next step is to calculate your refund and what you can afford. Is it more advantageous to your financial history and future to use the refund in our Tax Incentive program as a downpayment or use it to put towards a monthly payment?
By working with our experts, you’ll decide what the best route is to get into a new car today and pay for it later. We’ll work with you to determine the best vehicle on our lot as well as a price range you can afford. Taking advantage of applying a larger down payment can mean getting into a car that may have previously been out of your monthly budget. Applying a down payment helps to lower your monthly auto payment, often bringing it to an equal payment for an upgraded vehicle.
If you’re in the market for a new vehicle then you should know something about tax season: tax refunds and car loans are a good match.* That’s because refunds, which have averaged around $3,000 in recent years, can provide many approved buyers with a ready-made down payment on their next ride, or at least a useful chunk of it.
In turn, that money down may drop their monthly payment and provide useful savings on interest charges.
Let’s see what kind of difference a tax refund might make when financing a car. A $3,000 refund, for example, goes a long way toward covering the typical 12 percent down payment on the average price of a new car, which was $37,577 in December 2018, according to Kelley Blue Book. It would also more than cover 12 percent down on a used vehicle, with an average price of $20,085 in the third quarter of 2018, according to Edmunds data.
A down payment on a vehicle, or ready cash for a stretch of car payments, are not the only ways a tax refund might work with auto financing to your benefit. Here are a couple more examples:
This is another option for using a tax refund for a car purchase. Instead of allocating the money as a down payment it could be used for making a number of monthly payments on the new auto loan. A refund of $3,000 could be used to make 11 payments of $269; almost a year’s worth on a five-year loan term. Not a bad start.
If you have an existing car loan, using your tax refund to pay down the principal may save you money on interest over the remainder of the contract. Use an amortization calculator to see how adding to or subtracting from your principal and interest affects the loan and total payments.
With an idea of what you can afford and how using a tax refund may lower your costs, you’ll be in good shape to research vehicles and make a great choice at the dealership.
Consider getting preapproved for financing before you go. Preapproval offers the advantage of knowing the terms of your auto loan, including the total loan amount, duration and APR, up front so you can shop with the confidence.