How To Spend Your Tax Refund On a Vehicle
Tax season is a very popular time for consumers to purchase their next vehicle. The average tax refund is roughly $3000 according to the IRS. That’s a nice chunk of cash. So what’s the best way to spend it? Instead of blowing this money on extravagance, why not use it to get ahead? If you need a new vehicle this could be a great time to make that purchase.
Spend your refund wisely by carefully considering these options:
- Use the money as a down payment on a new or used car.
- Pay down and existing car loan.
- Refinance your current loan.
- Fix or upgrade your current car.
Use the money as a down payment on a new or used car
A substantial down payment is one of the most important factors in securing an auto loan or lease. Particularly for shoppers with poor credit, using a tax return as a down payment can create finance options that otherwise may have been out of reach.
Pay down an existing car loan
Some people might consider using their tax deduction to knock down the balance on their existing loan so they are carrying less debt. There are two ways to do that: Make an extra payment or two, or pay down the balance. Making extra payments means you pay off the loan sooner. Paying off the balance will reduce the amount of interest paid over time. If you want to go either of these routes, call the lender and determine the best way to proceed.
Refinance your current loan
Are you an unfortunate used-car buyer who’s been saddled with an 18 percent interest loan? By refinancing at a competitive rate, you could slash your monthly payments in half. If your car loan has a high interest rate, or you have improved your credit rating since you took out the loan, you could use your tax refund as an opportunity to structure a better loan. Use all or part of the refund to reduce the principal on the loan and get a better interest rate on the balance.
Fix or upgrade your current car
Many cars, provided they are well maintained, can be driven well past 100,000 miles these days. And in many cases, maintaining a car you own costs much less than buying or leasing a new one. With that in mind, where do you spend your upgrade money?
A new set of new tires can greatly improve ride quality, reduce road noise and even improve fuel economy. A major tune-up further boosts fuel economy, smooths out a rough idle and prolongs a vehicle’s life.
Other inexpensive repairs that can go a long way to rekindling your pride of ownership include clearing foggy headlights, getting a thorough detail, and repairing interior rips and tears. New floor mats alone can improve an older car’s interior appearance. Dent removal and paint touch-ups can often be done by a mobile service for just a few hundred dollars.
These fixes certainly don’t replace the thrill of new car smell. They will, however, make driving your current car more enjoyable and will likely prolong its life, reducing your need to get a new car and saving you money down the road.