Tax refunds are arriving.
And that means many Americans may be looking for a new or used vehicle on which to spend the money they get back from Uncle Sam.
Of course, due to the Coronavirus outbreak, the tax deadline has been extended to Wednesday, July 15.
But you should not spend refund money on a vehicle if, for example, you have other needs or your budget can’t absorb the ongoing monthly payments.
Still, the average refund of about $2,700 – more than $3,000 for earliest filers – might be tempting.
For those inclined to spend, the average refund could be enough to cover about half the 20 percent down payment financial experts recommend on a $27,000-$30,000 new or used vehicle. Or it at least may be enough to make a dent in a year’s worth of car payments.
If you do plan to spend your tax refund on a vehicle, Edmunds.com online shopping site has a half-dozen suggestions on how the extra money may help you make the purchase:
- Use 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 longer.
- Buy a really inexpensive used vehicle.
With a bit of searching, an average refund could go a long way toward a low-priced used or new car.
- 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 refund to pay all or part of 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,” said Edmunds.com. “Only by planning ahead and applying sound advice to car buying can you make the most of your refund.”
Visit our RoadLoans blog for more on ways to use your tax refund for a car purchase.
And happy tax season shopping.
* 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.