Maximize Your Tax Refund When Buying A New or Used Car

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About a third of all Americans spend their tax refunds on some sort of car-related purchases, which makes this one of the most common ways to use a tax refund. It’s a big part of the reason so many offer special tax refund car deals at this time of year. Since the average tax refund in the United States is roughly $3,000 according to the Internal Revenue Service (IRS), it’s easy to see why people would want to take this chunk of money and put it toward big expenses like cars.

Spending your tax refund on your car is a great way to ensure you’re making the most of that money. Some people like to spend it frivolously and treat themselves to some unnecessary spending, but that’s not always the best idea. After all, your tax refund isn’t just an unexpected windfall of money that you found out of nowhere. It’s your money that you worked hard for, and you’re only getting it back now because you’ve been overpaying for taxes all year long.

When you think about it that way, it will be easier to convince yourself that this money should go toward something important and not just a silly or fun purchase. There are many productive ways to use your tax return, including several that are related to vehicles. With that in mind, let’s take a look at some of the best ways to spend your tax refund.

Tax Refund Car Purchase

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If you’ve been looking to buy your next vehicle, this might be a perfect time. Whether you buy new or used, the money from your tax refund should help a lot with your down payment. This is important, too, because making a large down payment can dramatically lower your monthly payments and also reduce the amount of interest you pay over time. You might be amazed by how much money you can save with the right down payment, and there are actually other benefits to it as well.

For one thing, making a big down payment is one of the best things you can do if you’re trying to figure out how to get a car loan with bad credit. If your credit history is less than ideal, putting down a good chunk of money upfront will help potential lenders see that loaning you money isn’t as risky as your credit score might imply. As a result, it’s easier to get approved for loans with lower interest rates and lower monthly payments. So you’re saving money and making the process easier on yourself at the same time!

Pay Down Your Existing Car Loan

If you don’t need to buy a new car, consider using your tax return to help pay off your existing vehicle. When you knock down the balance of your current loan, you’re carrying less debt. This may help your credit, and it will almost definitely help you financially in other ways. For one thing, you’re probably going to be able to pay off your loan sooner. This will also reduce the amount of interest you end up paying overtime.

If you’re already close to the end of your loan, you may be able to pay the rest of it off completely. It’s an awesome feeling when you make your last loan payment and finally own your car outright. If this sounds like how you want to use your tax refund, be aware of the two ways you can pay down your existing car loan:

1. Make an extra payment or even multiple extra payments so that you can have the loan paid off in less time.
2. Pay down the balance so that you’ll end up paying less money toward interest over the rest of your loan.

Refinance Your Current Loan

If putting your tax refund toward your existing loan would still leave you with a lot of debt at a high interest rate, maybe the time is right to refinance. This option is normally especially appealing to people who bought used cars with bad credit and ended up with double-digit interest rates. Refinancing your loan and getting a more competitive rate can help you save a significant amount of money each time you make a monthly payment.

To do this, you can use some of your tax refund money to structure a new loan. Putting down this lump sum of money reduces the principal of the loan, leaving you with a smaller balance. The reduced financial risk for the lender (thanks to a smaller loan balance) can combine with any improvements you’ve made to your credit score and help you get a much friendlier loan offer. Many people don’t understand how loan refinancing works, but it’s definitely worth looking into if you feel the need for better car financing.

Start a New Car Lease

Sometimes you’ll see lease offers where you don’t have to put any money down or don’t have to put much money down. Those can be really attractive when you don’t have the funds for any big upfront payments, but those types of leases normally come with higher monthly payments throughout the entire life of the lease. If you can afford to put a bigger down payment on your lease at the beginning, the remaining monthly payments will be smaller.

This might not always be possible, so keep a few things in mind before you try to use your tax refund like this:

• Some leasing companies won’t allow you to do things like this. The amount due at signing is set in stone, as are the monthly payments. This is especially common when you’re claiming a lease special or other specific deal.
• Check to see if you’ll be able to continue paying at a lower amount if you decide to extend the lease beyond the time when it would normally end. This can be a huge added bonus in addition to making your lower monthly lease payments that are easier to manage.
• Look into gap insurance, which will help protect you from losing your large initial payment if you get into an accident within the first few months of your lease.

Put the Money into Your Current Car

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You can use your tax refund to help maintain your current vehicle, especially if you’ve been stingy about paying for regular service recently. Taking good care of your vehicle and keeping up with the maintenance schedule will actually save you a lot of money in the long run. It primarily does this in three ways:

1. Effective maintenance will help your vehicle run more efficiently, which will save you money on operating costs like gas.
2. Your vehicle will last longer when it’s properly maintained. This means you have more time before you have to spend up to tens of thousands of dollars on a new car.
3. If you can catch problems early because of preventative maintenance, they’re less likely to grow into larger issues that require very costly repairs.

If you’ve been falling behind with your maintenance, you may just be able to take it into a trusted auto shop or dealership for an inspection. They’ll give everything a good look and tell you what they think needs the most attention immediately. In addition to a generic tune-up you may want to replace your tires if you haven’t done so in a while. Doing so can reduce road noise and improve fuel efficiency at the same time.

Another thing you might want to do is fix cosmetic damages that you’ve been avoiding because they don’t affect the way your vehicle runs. For example, you could get some dents removed from the outside of your vehicle, get the paint touched up where it’s been scratched, or get some work done to restore your driver’s seat if it’s been showing signs of wear and tear. You might be amazed how much the appearance of your vehicle can improve if you simply get new floor mats or take care of your old, foggy looking headlights.

If your car is already in great shape and you’ve been keeping up with your regular maintenance, you may wish to enhance it with some accessories and upgrades instead. Would roof racks or a trailer hitch make your life easier on your next road trip? Have you been dreaming of the day you upgrade your stereo system so you can enjoy pure music at loud volumes while you cruise around town? Your tax refund gives you a cash injection that makes it a lot easier to pursue some of those projects.

How Not to Use Your Tax Refund

At the end of the day, it’s your money, so you’re the only one who really gets to decide what’s appropriate and what’s not. Still, finance experts generally agree that there are some things you shouldn’t do with money from your tax return, especially if you don’t normally have a ton of disposable income. Just as we recommend spending the money on frivolous things to treat yourself, we recommend against certain new car tax refund buying behaviors.

For example, we recommend against increasing your new car budget if your refund ends up being a little bit larger than you expected. You might think you can afford a little bit more now, but then you can find that you’re living above your means once that tax refund is gone. You can only spend this refund one time, and you’re going to be making payments on whichever car you buy every month for the next few years at least.

In other words, don’t give into temptation to add a bunch of luxurious interior features, extra technology, or swanky appearance packages that won’t work with your normal budget. Try to stay focused on what your budget looks like without the tax refund, and plan accordingly when you buy a new car. Then take that extra money and use it to make a bigger down payment, which will save you money in the long run and help you get even more affordable payments on a monthly basis.

If you can’t find something productive like this to spend your refund on, it might be best to save it for now. We know it’s hard to ignore a large sum of money like that, but some people find it helpful to put that cash in the bank and try to pretend it isn’t there. This way, you can always use it in the future if other car issues or unexpected payments come up.

Don’t Spend It Before You Have It

Waiting for your tax refund can be hard, especially once you know how much you’re expecting to receive. Keep in mind, though, that the money won’t necessarily hit your bank account immediately as soon as the refund is calculated. It will take some time for that money to get to you, so we recommend being patient before you get too far ahead of yourself with the car buying process.

This is especially true if you’re counting on your refund to help with your down payment or something else. If you need the money from your tax refund, wait until you have it. Otherwise you might find yourself in an uncomfortable situation where you’re in over your head or falling behind on payments because your tax refund took just a little bit longer to arrive than you were expecting.

Tax Refund Car Deals Near Phoenix

Valley Chevy dealerships throughout Phoenix and all of the surrounding areas are ready to work with you when you’re ready to make the most of your tax refund. Whether you’re looking to get genuine Chevy accessories for your current car, start a new lease, or buy a new car, we’re available to help make it happen.

Find the AZ Chevy dealership nearest you to get started today!