It’s a fact of life.
Many Americans spend their tax refunds on vehicles.
Indeed, some car dealers say they make up to 45 percent of their total used car sales for the year between February and April, Black Book’s Ricky Beggs told MarketWatch.
So with tax buying season upon us, it’s a good time to figure out how to use those extra funds, which averaged almost $3,000 per taxpayer last year.
Of course, you don’t want to spend the money on a vehicle if you have other, more pressing needs, or your budget can’t absorb the ongoing monthly payments.
“First of all, keep in mind that this is not ‘found money’,” wrote Philip Reed and Matt Jones at Edmunds.com. “It is actually your money being returned to you. But, since most people don’t include refunds in their budget, the temptation is to view it as a bonus and splurge.”
If you do plan to spend the money on a vehicle, Edmunds.com has a half-dozen suggestions on how to use the money wisely:
- Use the money as a down payment on a new or used vehicle.
This reduces the loan amount and results in smaller monthly payments with less budget impact.
- Fix or upgrade your current vehicle.
Keeping a recent-model-year vehicle well maintained could allow you to drive it more than 10 years and well past 100,000 miles, based on industry data.
- Buy a really inexpensive used vehicle.
With a bit of searching, an average tax refund could go a long way toward purchase of an inexpensive used vehicle.
- Make a large drive-off payment on a new-car lease.
Apply a larger down payment to your lease to reduce the monthly amount and ongoing budget impact.
- Pay down an existing car loan.
You may want to consider using your tax deduction to pay down the balance on your existing vehicle loan or make several extra monthly payments so you are carrying less debt.
- Refinance your current loan.
If your credit rating has improved since you took out your higher-interest vehicle loan, “you could use your tax refund as an opportunity to structure a better loan.”
“Remember that all the rules of smart car shopping still apply,” according to Edmunds.com. “Only by planning ahead and applying sound advice to car buying can you make the most of your refund.”
For more ideas on how to use your income tax refund wisely to get a new car, look for our colorful informational graphic Jan. 15, 2016, on the Santander Consumer USA blog.
Then have a happy tax refund season.