For many people, tax season is the perfect time to shop for a great deal on a gently owned vehicle. A big refund from the IRS is a nice way to help pay for it.
If you’re expecting a refund, be sure to file your return as soon as you receive your W-2 to get your refund quickly. You also owe it to yourself to spend the money wisely. Here’s a look at the benefits of buying a used car during tax season plus a few tips to help you make a smart buy.
Use Your Refund as a Down Payment
No one enjoys making big car payments, but if you have a recent bankruptcy or some rough spots in your credit, you might not think that you have a choice. The good news is that your tax refund can significantly offset your monthly payment.
By making a larger down payment, you’ll have less principal to pay down over the lifetime of the loan. The amount that you finance probably won’t drastically affect your interest rate, but lenders consider it a lower credit risk when buyers finance a less expensive vehicle.
Pay for Your Used Car in Full
As a standard icebreaker, most car salespeople will ask you how much of a monthly payment you can afford. We’ll be discussing the importance of setting a budget and sticking with it in an upcoming section, but you should only tell the sales associate your total vehicle budget.
You can estimate your car payment if you know your credit score and the total amount that you intend to finance, but if you share your estimate, you can rest assured that the salesperson will find a way to make that payment apply to any vehicle on the lot. Paying for the vehicle in cash saves you the hassle of servicing the loan each month, and you won’t have to worry about whether the dealership’s financing department is acting in your best interest.
There Will Be Plenty of Inventory on the Lot
Every used car dealership in the United States will be putting as much inventory on their lot as possible during tax season to meet the seasonal increases in demand for preowned vehicles. They will also have plenty of trade-ins coming in as other taxpayers make upgrades. You should leave no stone unturned in your search and expect dealership websites to provide updates on a regular basis.
You might also ask the sales associate about any recent trade-ins that they haven’t had the time to post on their site. Used car lots try not to waste time when it comes to getting new trade-ins listed, but smaller independent lots might not have enough staff to keep the website updated on a daily basis.
Don’t Forget to Set a Maximum Budget
It’s essential to set a budget for your car purchase, and receiving your tax refund check shouldn’t affect it. Your refund is not found money, and the extra cash in your bank account shouldn’t be considered permission to live above your means. Used car salespeople ask you what monthly payment you’re comfortable making to obscure the actual cost of a vehicle.
As soon as you tell them what you plan on paying each month, they’re going to tempt you with vehicles that are at the high end of your price range and over. They make the numbers work by extending the financing term over more years. In addition to paying a higher price for the vehicle, you’ll be servicing much more debt over the lifetime of the loan. They will often make excessive credit inquiries that can adversely affect your credit score, too.
Don’t Fall in Love on the Lot
When you find the right vehicle, you just know it! But remember not to make an emotional decision about your purchase. In an effort to close the deal, salespeople will often inform you that multiple people have looked at the vehicle you’re considering. You need to remember that there will be another great deal if this one doesn’t work out. Instead of feeling pressured to buy, you might ask the sales associate why the other prospective buyers passed on the amazing deal that you’re currently being offered.
Anticipate Additional Expenses
In addition to your monthly car payment, you’ll need to anticipate paying for maintenance, fuel, and insurance. Vehicles that are popular with car thieves will be more expensive to insure, so keep that in mind if you’re finally buying that sports car or luxury sedan that you always wanted.
If you are financing the vehicle through the dealership, be sure to carefully scrutinize all of the fees. Many buyers lose the gains they made with the sales associate in the finance office by paying for delivery fees, warranties, and extended service agreements. You can avoid the process altogether by getting preapproved for financing through your bank or credit union.
Don’t Purchase Until You Receive Your Refund
Car lot owners know that they’re headed into peak buying season and there are plenty of prospective buyers with extra cash. They’ll begin advertising plenty of incentives and discounts after the first of the year, but those promotions will still be available in a few weeks. Wait until the cash hits your bank before you start shopping, and stick with your original budget.
Read the Fine Print
You’ve heard plenty of radio ads for car dealerships that end with an announcer speedreading a lot of “fine print” into a 30-second spot, so you can only imagine how much of that you can expect on the sales contract! Those hot deals can often turn into a bait-and-switch, and the car you came to see online will often be unavailable even if you walk onto the lot as soon as they open the gate in the morning. If the dealership offers to double your refund, there might be a cap on the dollar value of the promotion. Some promotions might only apply to certain makes and models of vehicles.
Trust your instincts if you feel like you’re being scammed. Shopping for a used vehicle can be a time-consuming process, but don’t let salespeople show you vehicles that are “similar” to the vehicle that you came to see if they don’t have what you want.
Making a Smart Vehicle Purchase
Most of us look forward to our refund check during tax season with as much anticipation as a child waiting for Christmas morning, and upgrading your vehicle is a great use of your extra cash. Just remember to be patient as you search and stick to your well-thought-out budget.
You owe it to yourself to spend your hard-earned money wisely. You will have plenty of great deals to choose from when you shop for preowned vehicles this tax season. Keep in mind that there will always be another amazing vehicle somewhere else if the one you’re being offered isn’t the right fit.
