Advantages of using your tax refund as a down payment at a dealership near you
When you are financing a used or "new to you" car, it is always a good plan to set aside money for a down payment. As a general rule of thumb, you want to put down 20 percent of the vehicle's value as a down payment on a new car and 10 percent as a down payment on a used vehicle. This makes tax season a great time to buy a car and use your tax refund as part of your down payment.
Below are five reasons why using your tax refund as a down payment can benefit you.
1. Your down payment helps reduce monthly payments
The more money you put into your car down payment, the lower the monthly payments. To illustrate how a higher deposit can work in your favor, consider the following example.
2. You will pay less interest on your vehicle
Continuing from the previous example, you will notice that in addition to lower monthly payments, you will also pay less interest. Over a 60-month term, you'll save $195.31 with 10 percent down, or $390.61 with a 20 percent down payment.
3. You build equity in your vehicle
If you haven't heard of depreciation, it's a word you're familiar with when it comes to cars. Vehicles depreciate surprisingly quickly. In fact, new cars lose about 20-25 percent of their value in the first year. Your down payment will help you build equity in your vehicle right away, which will be invaluable when it's time to trade in your car.
Helps you stay above water
Being "underwater" on your car loan means you have negative equity. In other words, you owe more on the vehicle than its current value. Your down payment can help you avoid this situation by reducing the impact of depreciation on the value of your car.
For example, if you have an accident and your vehicle is totaled, the insurance company will pay you the value of the car, not how much you owe on the vehicle. This way you can pay out of pocket when buying a new car. Your down payment can lessen the spike in depreciation by reducing the amount of money you have to pay in such a situation.
4. Loan approval is easier
Many lenders want to feel that you have "skin in the game" before extending credit. This is especially true if you don't already have a long and strong credit history. A large down payment shows them that you intend to repay the loan and makes lenders more likely to approve you for a loan.
We are here to help! Navigating the car buying process isn't always as easy as finding the perfect vehicle. There are many financial considerations to understand and decisions to make along the way. As your car dealer, we help you make the smartest financial choices - and buying a car is no different. Our team will show you how different financing options affect your budget, monthly payments, and overall financial future. If you're ready to buy a vehicle, get pre-approved today. Each person's financial situation is unique and readers are advised to contact our finance manager for financial advice regarding the products and services discussed.
Cities Auto Sales
Crystal, MN 55429
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