It’s not one of the frequently asked questions we receive at RoadLoans.com, but at this time of year it’s a good one for anybody considering the purchase of a new or used car.
And if you did purchase a new or used car, you would be in some pretty good company.
Millions of taxpayers – more than one in five of those who expect to spend their tax refunds on something vehicle related – will use the money to purchase a new or used car, suggests the report “Use Your Tax Refund to Buy a Used Car” by Keith Griffin at About.com.
“Based on the info in [an] eBay Motors survey, Americans appear to view tax refunds as opportunities to make purchases of vehicles associated with the joys of driving,” Griffin wrote.
Tax refunds for 100 million Americans averaged more than $2,650 last tax season, and as much as $3,000 in previous years, enough to cover the typical 11 percent down payment on a new car or make a significant dent in a year’s worth of monthly car payments.
On the Cars.com auto loan calculator, for example, a $20,000 car – $15,000 after a $5,000 trade-in – with 8.25 percent sales tax, that 11 percent down payment, and 2.9 percent APR for 60 months would require a monthly payment of almost $263. Adding a $2,500 tax refund to the original down payment, however, results in a monthly car payment of around $218, a savings of $45.
Of course, a larger tax refund would enable the purchase of a more expensive car for the same payment.
For example, adding another $500 to the down payment allows the purchase of a $23,000 car while resulting in a monthly payment only slightly higher ($267) than the $20,000 vehicle.
And that’s before including possible purchase incentives in the price of the vehicle.
Looking at it another way, a $2,500 tax refund would cover about 9.5 months of car payments at $263, while a $3,000 tax refund would pay approximately 11.5 months of payments at the same amount – almost enough to carry you through to your next tax refund!
None of these calculations is guaranteed, but at least they give shoppers an idea of how to apply their tax refunds to monthly payments or the number of months of payments.
RoadLoans is a “Trusted Lender” of Cars.com.Written by Mark Macesich