Ways to Use Your Income Tax Return Toward a New Vehicle

We get a lot of things from the government through our taxes: national defense, roads, the space program, and many other services. However, with some strategic tax planning, you may be able to get much more back from Uncle Sam than you ever thought possible. Whether it's for paying off debts or for stocking up on supplies for a possible apocalypse, here are some possibilities to use your tax return this year.

Use Your Tax Refund Toward A Down Payment

When you plan to buy a new or used car, your down payment can make a big difference. A larger down payment means lower monthly payments and less interest paid over the life of the loan. For instance, a $3,000 down payment on a $15,000 car loan would mean $12,000 in borrowed money and a monthly payment of about $250 for 48 months. If you make just a $500 down payment, that same loan at 4% APR would cost approximately $270 per month for 60 months. That's an extra $1,080 in total interest paid over five years compared to the larger down payment.

Consider Buying a Pre-Owned Vehicle With Your Tax Return

The first step in deciding whether or not to spend your tax return on a car is knowing how much you can expect back from the IRS. If you work for an employer who takes out taxes from each paycheck, or if you have deductions taken from your check due to other factors, such as child support payments, then your tax refund typically equates to all those extra funds being returned to you. However, individuals who file their taxes may owe money to the government in some cases. If this is the case for you and your family this year, then it's not likely that you're going to have any leftover to put toward the purchase of a new vehicle or even a pre-owned one.

Service Your Existing Vehicle

If you're using your tax refund as a down payment on a car, chances are your current vehicle needs some fixing up. So before you go buying another car that will need maintenance, take care of the one you already have. Make sure you change the oil regularly and keep up with all the other recommended maintenance. If any big repairs are needed, like replacing the brakes or tires, get them done before you start shopping for a new vehicle. The more repairs you can make ahead of time, the less likely you will run into issues while trying to sell it or trade it in.

Pay Off An Existing Loan

It's not the most fun option, but if you have any high-interest debt, your tax refund could be the surest way to get out of it. Carrying a loan for a long time can cost you thousands in interest charges, so if you can pay off your car loan early, that might be a better choice than putting it toward a down payment. If you're still paying off an auto loan and want to refinance to get a better rate, having some extra cash on hand might help. Refinancing usually means taking out another loan, and lenders will consider how much money you can put toward it when deciding whether to approve your application.

As a professional in tax returns, we are focused on helping our customers successfully plan and implement their tax strategies. We offer a broad range of services to fit any customer's needs. Visit our dealership for more information.