It’s tax season and many Americans will be in line to potentially get a windfall of cash in the form of an income tax refund. If you’ve overpaid your income taxes throughout the year, you’ll likely be getting a big chunk of cash from Uncle Sam. If you are in the market for a new car, you can use this unexpected surplus to help you afford the car you’ve been looking for. In this guide, we’ll walk you through some of the benefits of using your tax refund to purchase a car as well as some options you’ll have to get that new car in your driveway. 

Benefits of Using Your Tax Refund for a Car Purchase

Buying a car with your tax refund can offer several advantages over traditional financing options and cash purchases.

Lower Interest Payments

By using your tax refund to purchase your new Honda, you can save money on excessive interest payments. Since you’ll be taking on less debt, the total cost to purchase the vehicle will be lower over the length of the loan. 

Avoiding Excessive Debt

Using your tax refund to buy a car can help you avoid taking on more debt than necessary. This can reduce financial strain and keep your credit score healthy.

Stay Within Your Budget

Using your tax refund on the down payment of a new Honda will ultimately give you a lower monthly payment. Having a payment that better fits your monthly budget will keep you in good standing with your financial institution and help you to avoid any late payment penalties or repossession.

Three Ways to Use Your Tax Refund On A Honda Vehicle

So you’ve gotten your tax refund in the mail and you are wanting to apply it to your next vehicle purchase. There are a few options you’ll want to consider before you take a trip to your local Honda dealership. Let’s go over a few ways that you can use the cash from your tax refund to help you afford that new Honda vehicle you’ve been looking for. 

Buying Your New (or Used) Car

If you are looking to buy your next car outright, then directly purchasing your vehicle with your tax refund may be the best use of the funds. Depending on the size of your refund, you may be able to cover all, most or some of the total cost of your vehicle. If you can’t cover the entire cost of the vehicle with your refund, then applying the cash towards your down payment can significantly improve your financing terms. You’ll likely benefit from a lower payment, lower interest rate or you may be able to pay off the loan much quicker than if you were to finance 100% of the cost of the vehicle. Generally, shorter loan terms will receive a better interest rate from your financial institution. Applying your income tax return to the down payment is one of the best ways to help you afford your next vehicle. 

Leasing Your New Car

Another way to apply your tax refund to a new car is by applying it to your lease. Rather than buying your car outright, you can put the money toward a new car lease. Leasing a car can save you money in the long run. With leasing, a larger down payment will reduce your monthly cost or help you to avoid the monthly cost altogether. Beware of putting too much money down, however, as you may be unable to recover the down payment in the event of an accident or theft. There are also other considerations to understand before committing to a lease such as mileage restrictions. We suggest you do some research according to your driving habits to determine if applying your income tax return to your lease is the best option for you. 

Pay Down Your Current Loan

Do you owe money on your current vehicle? Maybe you are underwater and the loan on your vehicle is more than the value. If this is the case, applying your tax refund to paying down your current auto loan may be the best use of funds for you to purchase your next car. Depending on your current credit situation, many lenders are hesitant to finance your negative equity on another car deal. Even if you do qualify for an auto loan, you may be exposing yourself to higher interest rates and a payment that is unaffordable on your budget. In this case, we would recommend using your tax refund to pay down your current auto loan. This will reduce your negative equity and will put you in a much better financial position when negotiating your next auto loan.

Conclusion

Buying or leasing a new car is a big financial decision. Next to buying a house, it may be the second biggest financial decision you’ll make. That’s why using your tax refund can be a great tool to help you better afford your next automobile. Depending on your goals and current financial position, there are a few ways to best deploy your tax refund toward the purchase of your next vehicle. We hope this article was helpful in your quest to purchase your next Honda vehicle.