What To Keep In Mind When Financing A Vehicle During Tax Season

The day you get your tax refund isn’t necessarily a holiday, but it might as well be. Adults around the country rejoice when their checks from the IRS finally hit their bank accounts. Like many others, you might want to make an automotive purchase with your extra cash. Maybe you’re looking to replace an aging vehicle or even buy your first car. Regardless, there are some things you should keep in mind when financing a vehicle during tax season. Check out this guide for the top considerations that’ll help you make the most of your refund.

Make a Cash Deal

Buying a car in cash is ambitious, but it can be a smart financial move for many people. Forgoing financing can help you qualify for discounts, avoid high interest rates, and free you from monthly payments. Cash deals also allow you to buy within your means and remain debt-free.

If you’ve been saving to buy a car in cash, your tax refund might be just enough to make your goal a reality. With a few extra thousand dollars, it’s very possible to drive off the lot in a vehicle that’s entirely yours. Just ensure you would have enough money left in your savings after your big purchase so that you can retain financial security.

Make a Sizable Down Payment

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It’s not feasible for everyone to buy a car in cash, but financing is a practical option. You get to pay less money upfront, qualify for financing deals, and build credit. When you apply for auto loans, consider using your tax refund to put down a sizable down payment. The more money you put down, the lower the interest rate is. This strategy allows you to have lower monthly payments and pay less money over the course of the loan. A sizable down payment may also shield you from the natural depreciation of the car’s value.

Typical down payments are around 10% of the car’s value, but your tax return might help you afford a down payment that’s as much as 20% of the car’s value. Note that the ideal down payment varies depending on the lender, the value of the car, and your current financial situation.

Save Some Money for Additional Expenses

Financing a car comes with many expenses. So while it’s beneficial to make a large down payment, you’ll want to save some money for additional costs. Many borrowers consider their monthly payments for the first year and plan their budgets accordingly. You should also think about additional expenses like insurance, regular maintenance, and occasional necessities like tires. By factoring all of these costs into your budget, you can make an affordable down payment that still helps you reduce your interest rate.

If you’re wary about making a smaller down payment to save money, consider that many borrowers offer lower interest rates during tax season. They recognize that people have extra cash to spend and want to incentivize them to apply for auto loans. Therefore, you can save money while still taking advantage of low interest rates.

Wait Until You Receive the Money

When you know your estimated tax return, you might get excited and want to head straight to the dealership. However, it’s important to practice some patience when making such a big purchase. It’s common for tax refunds to be delayed, so try to wait until the funds are available in your bank account. You’ll know exactly how much money you have to work with and ensure you make payments on time.

Consider a Lease

While many people buy a car during tax season, it can also be advantageous to lease. Leasing allows you to have lower monthly payments and get a new vehicle at the end of the term. Consider using your tax refund to put a down payment of around $1,000 on your lease. You’ll lower your monthly payment amount even further and lock in low interest rates. This move also gives you more flexibility by allowing you to extend your lease when necessary.

Keep Sales Tax in Mind

If you purchase from a private seller instead of a dealership, you’ll have to pay sales tax next tax season. It’s important to keep track of your payments so that you comply with state regulations. If you want to avoid the hassle of paying sales tax, buy your vehicle through a dealership like North Coast Auto Mall.

Consider the Available Inventory

Dealerships tend to stock up on new and used cars during tax season. This increased inventory is to prepare for the many shoppers that use their tax refunds to buy a car. It also results from dealerships buying cars at the end of the year and accumulating a surplus when they can’t sell them all during the winter months.

With so many cars available, it’s important to do your research and look for the best deals. Try to find the car that suits your personal preferences and features a competitive price. Dealerships tend to slash prices to encourage buyers to use their tax refunds to buy a car, but shopping around can ensure you make the most of your money.

Stay Within Your Budget

It can be tempting to opt for a higher-end model knowing your tax refund is on its way. You might also be more inclined to agree to extras like warranties and maintenance plans. To stay within your budget, consider going to your dealership with a plan. Knowing exactly how much you can afford allows you to have enough money to make future monthly payments.

As exciting as shopping for a new car is, we know that it can also be intimidating. Contact or visit us at North Coast Auto Mall for a stress-free experience. Our representatives are here to help you find the vehicle that suits your preferences and budget. You’ll love our super low prices and vast inventory that are available all year long, including during tax season. We also have plenty of financing options that allow you to optimize your tax refund.

 

Posted in Financing