You’ve already done the hard work and filed your taxes. Now it’s time to turn your refund into reFUN – on the road. The average refund last year was sizeable – about $2,800 according to the IRS. Whether your tax refund is above or below average (or more or less than you hoped) there are smart ways to put the money to good use when it comes to your car and finances.
Increase your down payment
A larger car down payment means you’ll need to finance less, and you could end up with smaller monthly payments. For example, a down payment of $3,000 on a $40,000 vehicle financed for 60 months at 10 percent interest would make your monthly payment about $786. If you double your down payment to $6,000, you could reduce your payment to just over $722 a month – that’s a savings of $64 a month and more than $768 a year!
Pay ahead on your current account
Depending on your loan balance and tax refund amount, you could easily have several months of payments in hand after getting your tax refund. Keep this money saved in a secure bank account so you’ll have the funds available when the loan payment is due. You could even make additional payments. Although you will still be paying interest on those payments, you can pay off your loan quicker. Santander Consumer customers can set up Auto Pay so deductions are automatically made by the payment due date.
Get your account back on track
If you’ve struggled to keep your account paid in full every month, you could use your tax refund to get your account current. Popular payment options include Auto Pay, online and by phone or mail (fees apply to payments made using a debit card).
Invest in gap coverage or upgrade your insurance coverage
Auto insurance is one of the expensive, but necessary aspects to car ownership. Rates can vary depending on a number of factors including location, driving record and vehicle type. With the average cost of auto insurance expected to be $1,707 annually in 2022, according to Insurify, directing at least a portion of your tax refund to car insurance can be money well spent.
Similarly, you may want to use your tax refund to purchase the lesser-known gap (guaranteed asset protection) insurance for your vehicle. If you get into an accident and your vehicle is totaled, gap insurance covers the difference between what your vehicle is worth and what you owe your lender.
Buy warranty coverage
Car repairs can be expensive and a blow to your budget if you don’t have money set aside for the unexpected. When you buy a car, you can opt for manufacturer’s warranty or an extended warranty. While coverage varies between policies, parts such as the engine, air conditioning, electrical systems, brakes, and steering are often included.
Fix or upgrade your car
With inventory levels low and prices high, trading in or buying a vehicle in 2022 may not make sense for you. While you wait for supply chain issues and chip shortages to sort themselves out, upgrading your tires or sound system are a few improvements that will keep you comfortable in the meantime.
Pay off your loan
Depending on the amount of your tax return and how much you owe on your vehicle, you may be able to pay off your loan entirely – just be sure your loan doesn’t have a prepayment penalty. Cruising around in a car you own outright is definitely fun!
* 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.