Use Your Tax Return To Buy a Car - Santa Clara, CA

Use Your Tax Return To Buy a Car

You have a few options for using your income tax refund toward a vehicle purchase. Depending on your financial situation and the type of vehicle you are interested in, you can use your tax refund for a down payment, for a trade-in, or as collateral on an auto loan.

Use Your Tax Refund Toward A Down Payment

A down payment is one of the best ways to pay for a car. A larger down payment means you will have lower monthly payments and a smaller loan amount. You can also use your tax return as part of your trade-in offer, as long as you do not owe any money on the trade-in. If you do owe money, you may be able to roll that negative equity into your new auto loan with the help of your tax return. However, rolling the negative equity into a new car loan is not always recommended because it increases the total financed amount and may increase your monthly payments to an unsuitable level.

Consider Buying a Pre-Owned Vehicle With Your Tax Return

Knowing how much money you can expect from your return is a big part of figuring out whether or not it makes sense for you to use your tax refund to make a down payment on a new or used car. You can estimate your tax refund with the IRS withholding calculator. The amount may vary depending on how much income you made, your tax bracket, and any deductions or credits you qualify for. You can also use our free car loan calculator to help you figure out what type of monthly payments would work best for your budget before applying for financing.

Service Your Existing Vehicle

If you are planning on buying a car around the tax season but are not sure if you can afford it, or if it's financially wise, keep in mind that your existing vehicle may need repairs. By setting some of that money aside and using it to fix up your existing vehicle, you can hold off on buying a new car and use the extra money from your tax return to help get you there.

Pay Off An Existing Loan

Pay off an existing loan. You can pay down your current car loan balance and reduce your monthly payments. This is particularly useful if you have negative equity on the vehicle, meaning you owe more than it's worth. Paying down the balance will help bring it closer to its value, increasing your chances of approval if you need to refinance later.

In the end, whether you are leasing or financing your vehicle will depend on various factors. It's hard to make a recommendation without knowing the details about your current situation. Let us know what you decide, and we're happy to be a resource for other financial questions you might have.

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