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Why You Should Put Your Tax Refund Towards Your Car

Why You Should Put Your Tax Refund Towards Your Car

Tax season happens every single year at the same time but that doesn’t make it any easier, less stressful, or fun. More often than not this time of the year is extremely stressful and requires a lot of extra work. But, the one shinning beacon of hope during tax season is the possibility of not owing any money and if you’re really lucky, getting a refund.

If you’re fortunate enough to be receiving a sizable refund this year then you’ve probably already started to make a list of all things you want to do with the extra cash. The options are vast and choosing the right one can be just as overwhelming as filing your taxes. A great way to ensure that you don’t waste your tax refund this year is to put it towards a big purchase or investment that you’ve been thinking about and saving for, for a long time. Purchasing a car or upgrading the one you already have is a great way to invest your tax refund in something that will have a positive effect on your life. Cars are expensive and there are endless decisions to be make so here are some tips on how to use your tax refund to invest in the car you already have or the one you’ve always wanted

Save on Upfront and Long-Term Vehicle Costs

Deciding to purchase a vehicle is a serious decision because it costs a lot of money, both upfront and in the long-term. But since you have a good amount of money from your tax refund to work with, the good news is that you can help alleviate some of the upfront and long-term costs. There are five main costs that you need to beware of before you decide to purchase a vehicle:

  • Down payment
  • Monthly loan payments
  • Insurance
  • Fuel
  • Maintenance and repairs (tire, oil changes, damages)

Using your tax refund to increase your down payment will allow you to save money on almost all the other costs associated with owning a vehicle. A larger down payment means smaller monthly payments, which means you’ll end up paying less interest on your loan. Furthermore, all the money you save can be used to pay for maintenance or unexpected costs in the long run.

Free up Money for Other Expenses

Sometimes it’s impossible to get to work or go about your daily life without a vehicle, but guess what? Sometimes it’s also really hard to afford a vehicle. So if you’ve been using the money you need to pay for your monthly expenses to pay for, or save for a car, then putting your tax refund towards your car is the perfect way to free up your money for other expenses. Staying on top of monthly bills and necessary expenses is the best way to free yourself from personal debt so it should definitely be a priority. Making a larger down payment on a vehicle will most likely provide you with smaller monthly payments and therefore allow you to keep on top of your other expenses and prevent too much debt from pilling up.

Work on Your Credit Score and Financial Health

Is getting a large tax refund from the government going to give you a great credit score? No, definitely not, there are lots of people with bad credit scores who get refunds every year. But what you can do is use your tax refund to help work on improving your overall financial health, which includes your credit score.

Unfortunately a low credit score can prevent you from getting the money you need, whether it’s in the form of a new credit card or a car loan. Here’s how your tax refund can help you improve your credit score. If you’ve been thinking about getting a car then use the money you received from your taxes as a down payment, use the cash to your advantage and negotiate a great deal so you’ll end up saving some money. Now use your car loan to improve your credit score by being financially responsible, always make your payments on time and in full. Over time, if you continue to successfully make your payments you will see a significant improvement in your credit score and overall financial health. The lesson here is to take advantage of your tax refund and make it work for you; don’t waste it on things you don’t need.

Upgrade Your Current Vehicle

If you have a pretty good grasp on all your other finances and nothing else needs to be saved for or paid for then why not look into upgrading your current car? Obviously if you have other financial issues or more important things to save for you should put your extra cash towards those before you decide to upgrade your car. But, if you’ve been thinking about upgrading then your tax refund could be the extra push you need to afford the car of your dreams. Just remember going into debt or ignoring another financial issue just so you can have a cool car definitely isn’t a responsible financial decision.

Deciding what to do with your tax refund should be something you put a lot of thought into. If you decide that you want to invest your money into your vehicle then just make sure you plan it carefully and try to use the extra cash to your advantage and don’t forget to consider your future financial health.

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Caitlin graduated from Dawson College in 2009 and completed her Art History degree from Concordia University in 2013. She started working as a freelance writer for Loans Canada right after University, eventually working her way up to Chief Content Editor. Her work has led to a large expansion of the company’s content department and she manages a staff of talented writers who are passionate about educating Canadian consumers about credit, debt, and all things personal finance. With over five ...


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