Your tax return and a down payment on a new car go together like grilled cheese and tomato soup - they're fine on their own, but they make so much more sense together. That's because the average tax return of $3,000 can cover (or take a big bite out of) a down payment on a new car.
By putting down the biggest down payment that you can afford, you may even lower your monthly payments and reduce interest charges. Sounds good, right? Read on for the logistics of transforming your tax return into a down payment.
Make the Right Calculations
Once you have your check in hand (or, more likely, a direct deposit in your bank account), you need to calculate what you can afford. Let your budget be your guide as you decide how much you want to spend on your new (or used) car.
If your tax return is about $3,000-the national average-that's a solid down payment on a $15,000 car loan. Generally speaking, it's a good idea to put at least 20 percent down when you take out a loan. By putting even more money down, you can potentially lower monthly payments and save money on interest.
Here's another hypothetical: you've already got a few thousand saved up, so when you get your $3,000 tax return, you now have $6,000 for a down payment. This bigger down payment can net you a bigger car loan and an even nicer car.
How Your Tax Refund Affects Financing
Basically, using your tax refund as a down payment on an auto loan takes a chunk out of what you owe, potentially lowering your monthly payments. If you're buying a used vehicle for $13,000, for example, your $3,000 tax return means that you only have to finance $10,000. The less you have to finance, the lower your monthly payments and the less you have to pay in terms of interest.
You Always Have Options
If you're worried about bad credit or no credit, take a chill pill. Whatever your deal is, you've got options. Bad credit loans are available for shoppers who don't have the best history. If you're on a particularly tight budget, some loans even offer no-money-down options, so you can transform your tax return into monthly payments that can last for some time.