Consumer reports show that most people tend to spend their tax refunds on latest electronics, clothes, and jewelry. It’s the excitement that comes with receiving a significant amount of unexpected money that drives loyal taxpayers to impulse buying. Today, you’ll become wiser by understanding these Smart Reasons to Buy a Used Car with a Tax Refund.
1. 8 Smart Reasons to Buy a Used Car with a Tax Refund
1. Gives you a head start on down payments
Saving for a down payment takes several months. Sometimes saving goals don’t work out because the car dealership may run out of stock just when you have enough money to pay a decent down payment. In this situation, one either has to settle for a lesser car or spend time looking for the desired motor vehicle in different dealerships.
A tax refund can slash your savings period by half. This is a big advantage because you obviously need a car urgently. You can also save your tax refund and wait for the best times of the year to buy a car.
2. Enables you to purchase better cars
A tax refund boosts your car savings to the point where it’s possible to drive the car you want rather than one you have to settle for. Perhaps you’re saving for a saloon but deep down you want to own an SUV. A tax refund enables you to pay larger down payments without risking your credit score or current financial health.
Buying a car that you don’t feel attached to will cause buyer’s remorse. This is the feeling of guilt one experiences after buying an expensive item because he or she didn’t feel certain about their decision. In this situation, one feels indifferent about taking good care of their car.
3. You get a head start on auto loan installments
If you receive a tax refund at the end of your car savings plan, you have two options. With your increased purchasing ability, you can buy a better car by paying a huge down payment. However, if you want to get out of your car loan fast, then you’ll use your tax refund to pay auto loan installments in advance.
Let’s assume that the car dealership expects you to pay $300 per month and you choose a 36 month repayment period. If your tax refund amounts to $3,000 you can pay half a year’s worth of installments up front by paying $1,800.
4. Pay affordable insurance premiums
Auto insurance companies determine how much you pay by valuing your car. When you use your tax refunds to purchase a used car, you also get to pay cheap quotes. Even if you buy a recent BMW or Mercedes model, the auto insurance company still uses current depreciation rates to determine your insurance quotes. So, you end up paying lower premiums than a car buyer who bought a similar car from the showroom that’s brand new.
Financial experts recommend maintaining recurring car expenses below 20% of one’s gross monthly income. Buying a used car with your tax refunds enables you to achieve this limit.
5. Ideal for individuals who want to improve their credit scores fast
Perhaps you’ve just come out of bankruptcy and you’re wondering how to improve your credit score tremendously within a short period. Credit experts recommend borrowing secured debts because repaying them on time boosts your credit score significantly. Your credit limit also improves because of clearing secured debts on time.
Your tax refund enables you to have enough money to pay a down payment for a bad credit auto loan. If you already had enough savings to pay a down payment, then you can pay several months’ auto loan installments in advance and boost your payment history.
6. Ideal for parents with kids set to join college
College students need reliable transportation to enable them to attend lectures on time. Your son or daughter needs a private car to arrive to work early because public transport is unreliable. In addition, enabling your kid to own a personal car enhances their maturity as young adults.
If you know about your child’s car savings plan, you can surprise them by chipping in using a portion of your tax refund. Alternatively, you can offer to pay his or her down payment then ask them to pay for auto insurance premiums and installments using their car savings. It’s a win-win situation for both parent and child.
7. Enables you to buy a car as a gift
Sharing is caring. Rather than spend all that tax refund on yourself, why not use it to make someone smile and remember you for the rest of his or her life?
Do you have a nephew or niece who’s about to turn eighteen? You definitely know that every teenager wants to own a car whether new or used. Make sure you use discreet methods to find out their favorite color in order to get the perfect gift. Also, notify the car dealership that it’s a birthday gift in advance so that they can arrange a special delivery when the birthday party takes place.
8. Purchasing a car is better than buying trendy electronics
Why is using your tax refund to buy a used car a better decision than purchasing a newly launched iPhone or computer? Because you can boost your credit score significantly by applying for an auto loan and paying all your installments on time. An improved credit score raises your credit limit and this enables you to afford bigger homes and better cars.
On the other hand, buying costly furniture does nothing on your credit score. You cannot trade it in to get better furniture one year down the line. One major limitation of purchasing high-end smartphones and tablets is that your expenses increase significantly. Why? Because you have to purchase expensive apps frequently to get the best use from your device.
Buying a used car with your tax refunds is a smart financial decision because convenient transportation enables you to keep up with professional and family demands. You also get to improve your credit start by getting a head start on your down payment. If you decide to upgrade to a better car, you can trade in the car you bought using your tax refund.