Putting some thought into your down payment will help you determine which car to buy and how much financing you’ll need. Unless the car you’re looking to buy is on the cheaper side, your tax refund will likely only cover a portion of the purchase – the down payment.
The down payment is the part of the purchase price that you (the buyer) pay in cash and do not finance with a loan. Some lenders do not require a down payment, but most do. Even if your lender does not require a down payment, it can still be in your best interest to make one. The more you put down upfront, the less you need to borrow. A smaller loan means smaller payments!
Plus, a large down payment can help get you approved if you’re applying for a car loan with poor credit. You’ll be borrowing less (so less risk for the lender) and will show the lender that you’re serious!
How do you know if your tax refund is enough for a down payment?
- For a used car loan…you generally want to make a down payment of 10%. For a car with a purchase price of $15,000, you’d put down $1,500 and finance the remaining $13,500.
- For a new car loan…you’ll want to make a down payment of 20% or more. So if the purchase price of the vehicle is $20,000, you’d put down $4,000 and finance the remaining $16,000.
The average tax refund is about $3,120, reports the IRS. How much is yours? If you receive the average amount, you could easily buy a car with your tax refund! Put down $3,120 on a used car with a purchase price of $15,000 and you would only need to finance $11,880.
Apply for auto financing before visiting the dealership.
It’s often best to secure your financing before going to the dealership. Car dealers make a profit by referring you to their preferred lender, marking up interest rates, and even inflating the price of service contracts and other vehicle insurance products. Once you’ve been pre-approved, you can confidently walk into the dealership knowing that your financing is good to go.
Apply for an auto loan online once you receive your tax refund check. Since some lenders require down payments and others don’t, it’s often best to apply and do some comparison shopping. Apply through myAutoloan and we’ll match you with up to four offers in a few short minutes. No obligations and no hassles. Choose your offer and then receive an online certificate or check within 24 hours. Use your check to buy the car you want, where you want! Can you say the same for dealership financing?
During the application process, you’ll be asked for the estimated purchase price of the vehicle and your estimated down payment. With your tax refund check in hand, this last number should be easy!
Now buy a car with your tax refund!
Time for the fun part! With financing in hand, you’re ready to get the best pricing on your new or used car. You know how much you can afford, the type of car you want, and how you’re going to pay for it. The car salesman wants to sell you a car and you’re ready to buy. You’re a serious buyer with financing in hand – it’s time for a test drive!
And even if you don’t need a new car? You can still spend your tax refund wisely by…
- Paying down an existing car loan or getting ahead on payments
- Putting your refund towards the principal of an existing loan and applying for a better interest rate on the remaining balance (a.k.a refinance)
- Take care of important car repairs and maintenance services
This year, put your tax refund towards something that’s useful and you’ll appreciate for years to come – a reliable car that you’re proud to drive! Apply now and compare up to four offers in just minutes. If you’re still waiting on your refund, learn more about auto financing from the pros at myAutoloan.