Tax refunds for many Americans over the past few years have been averaging almost $3000! This money can be used as a downpayment for those who are in need of a new or preowned ride. Putting money down on an auto loan can reduce your monthly payment and even the interest rate that bank assigns. The following steps outline how you can use your refund towards your new car.
1. Get the check from Uncle Sam.
2. Calculate what you can afford.
3. Determine if you would be more comfortable applying your refund to your down payment or using it for your monthly payments.
4. Find a car! Not sure where to start? Use our “Preferred Dealer” locator.
How using a tax refund could affect your financing
– Lower your monthly payment
Let’s say you are looking at purchasing a car or truck for $20,000 and you have a trade-in worth $5,000. At this point you are looking at financing a balance of $15,000. If we take a standard 60 month loan at a rate of 4.99% APR, your monthly payment would be $283/month with approximately $1,980 paid in interest.
Adding an additional $3,000 cash down payment to the scenario reduces the monthly payment to $226/month with $1,584 paid in interest. That’s $57/mo less in payment and an interest savings of almost $400.
– Using the refund for your car payment.
Using the above scenario, if you keep the $3000 refund to use to make your payments, you could make roughly 11 monthly payments, almost a year’s worth on a five year loan. Not a bad start!
Get pre-approved and find your car
Once you have determined what you will do with your refund and how much car you can afford, it’s time to get pre approved and start looking. Pre Approval can also help you determine which might be the best route for you based on your credit history.
You can apply online in minutes and get a same day decision. Not sure where to find a great preowned car, truck, or SUV? Use our dealer locator. We work with over 75 dealerships throughout Minnesota, Wisconsin and North Dakota. Each one is able to show you select used models meeting our standards for age, mileage and financing.
Two more ways your tax refund and car loans can work together
Using your tax refund towards a down payment or cash for a stretch of car payments are not the only ways a tax refund and auto financing can work well together. Here are a couple more possible scenarios:
Pay down principal
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.
Refinance your current auto loan
Was your credit less than perfect when you signed your current finance contract? Have you thought about lowering your payments or renegotiating the rate or terms? If you have been in your existing auto loan for more than a year and your credit score has improved over the course of the loan, or interest rates have fallen, then you may be able to get better terms on the refinanced loan, such as a lower APR. AppCore can assist with traditional refinancing!
*These statements are informational suggestions only and should not be construed as legal, accounting or professional advice, nor are they intended as a substitute for legal or professional guidance. Please consult a tax professional.