It’s tax season, and many of us are filing and discovering the pleasant surprise of a refund on the way. Of course, some of us use our refunds to pay debt, or for trips and other little bits of fun. But some of us consider using it to cover a major personal expense, like a down payment on a new car. And that’s usually a good way to use it, if you’re careful.
A down payment is always a good idea when buying a car. It not only drives down the overall price of your car, it also brings down your monthly payment and helps you cover incidental expenses related to purchasing a car, such as excise taxes, dealer fees, and other costs.
That said, though, putting together a down payment can seem to be an impossible task, especially if you try to meet the standard of 20% to 30% of the overall price. So, many of us turn to the tax return as a source of money for the down payment. And truthfully, it’s not a bad place to start to build a down payment. The average tax refund this year is down slightly, but still sits at an average of $3,000 or so, which for lower-priced new cars and many late model used cars is well within reach of the 20% threshold. If you set it aside, and save a bit more, you can easily meet the down payment.
But how do you get the most out of your tax return? And how do you avoid unscrupulous dealers raising prices?
Getting The Most From Your Return
Start by being patient and setting your return aside. You should do this for a few reasons, the first being that some dealers will, in fact, raise prices slightly when tax return season rolls around. Even if they don’t raise prices, there are still enough buyers at any dealership this time of year that you won’t have as much leverage as you would normally. So, put your refund in an account and give it a month after tax season.
Second, you should take the time to break out your budget and figure out how much of a monthly payment you can afford. If you currently have a car, you should research its trade-in value and see what that can add to the value of your return.
Finally, you should start researching the car you want to buy and look for financing. Look at the price and what kind of car you need; remember, you can do all of this online, right down to looking up the quality of the dealership and the value of the trade-in. Even with a down payment, you’ll still need to secure auto financing, and that can be a task in and of itself.
Fortunately, with companies like Federal Auto Loan, you’ll be able to run your application across an entire network of lenders to find the best deal.
In short, when you get your tax return, set it aside and start shopping for a car. With a head start on the down payment, you’ll be able to get the best deal for your hard-earned money.