If you have gotten or are expecting a tax refund, you're probably thinking of all the ways you can spend that money. If you are dealing with poor credit and need a car, the solution is simple. Using all or part of it as a down payment on a car can help you kill two birds with one stone.
The Internal Revenue Service (IRS) began accepting tax returns in January. They will continue to do so through the April 18th deadline and beyond. According to the IRS, the average tax refund is over $3,100, which is no small chunk of change for most of us.
You may be thinking of ways to splurge with your tax refund. But if you are dealing with bad credit and need a car, we would recommend a more practical option: using it as a down payment on a bad credit car loan. This will:
- Get you the transportation you need.
- Give you the opportunity to rebuild your credit with timely loan payments.
"Why shouldn't I just buy a used car with cash?" If that's the question you were asking yourself, the second point above answers it. While buying a car with cash does nothing for your credit, an auto loan is a great credit builder.
An auto loan adds installment credit to your borrowing profile. It also gives you a chance to show that you can responsibly pay back a large loan. If you make all of your payments on time, you can greatly improve your credit score by the time you pay off the loan.
And you may not even have to use all of your tax refund, either. Depending on the size of your refund and the car you choose, you may only need to use a portion of it as your down payment. You can also pair some of it with a trade-in and use that combined amount as your down payment. This allows you to put the rest of your refund into savings or toward other expenses.
Benefits of Using Your Tax Refund as a Down Payment on a Car
A down payment is a great thing to have when it comes to bad credit car loans. Here are some of the benefits it provides:
- It can help you get approved. Most subprime lenders require a down payment. A down payment allows you to borrow less money, which means the lender will have to finance less. This makes them more likely to approve you.
- It reduces the amount you need to borrow, which saves you money. Again, a down payment lowers the amount you have to borrow. Taking out a smaller loan reduces your monthly payment. More importantly, it allows you pay less in interest charges over the loan term. This is especially helpful on bad credit loans, which typically come with higher interest rates.
- It can allow you to shorten the loan term. If you are interested in saving even more money, a down payment may allow you to shorten the length of your loan. If you borrow less, you may be able to shorten the loan term and still have a monthly payment that fits your budget. This allows you to pay less in interest charges and offers flexibility because the loan will be paid off more quickly.
Additionally, your down payment can reduce the amount of time you'll have negative equity in your vehicle. This can be helpful if you want or need to trade in or sell the car before the loan term is up.
The Bottom Line
If you are eager to put your tax refund toward a car purchase, but are struggling to find somebody willing to finance you, Drivers Lane can help. We have a nationwide network of dealerships that specialize in subprime financing, and we can connect you with one in your area.
The best part? Our service is free and puts you under obligation, and we work fast. Get started right now by completing our secure online auto loan request.