Using Your Tax Refund as a Down Payment on a Car

When tax season comes, many filers begin dreaming of how to spend their tax refund. A good option could be to use it to help finance a car. Tax refunds can be a great start when you need a down payment for a vehicle.

Down Payment Requirements for Poor Credit

Using Your Tax Refund as a Down Payment on a CarWhen financing a car as a bad credit borrower, you're always required to make a down payment. The amount you have to put down can vary from lender to lender, but if you're working with a subprime lender, they typically require at least $1,000 or 10% of the vehicle's selling price (whichever is lower).

Down payments help you save money on the total cost of your loan. When you make a down payment, you're borrowing less, which means there's less of a loan balance for interest charges to accrue on. This saves you money in the long run.

Down payments also reduce negative equity, and keep the time you have with negative equity shorter.

Making a Down Payment with Your Tax Refund

Since you're required to make a down payment, tax season is often a good time to look for a car. When you're struggling with credit issues, it can sometimes be difficult to save the money you need for a down payment. But now is the perfect time to use your tax refund to your advantage.

If you're getting a big enough refund from your taxes, you can use it to cover your entire down payment. If your refund is larger than needed, you may want to consider putting the whole thing down anyway. Doing this can help you save even more money on your loan.

Another way to utilize a large down payment for a vehicle is to only put down the amount required by the lender, and put the rest into a savings account to use for future maintenance and repairs. Or, you could use the remainder to make the first monthly payment or two.

When your tax refund isn't big enough to cover the whole down payment requirement, it can be combined with money you've saved or a trade-in to make up the difference.

Using Your Tax Refund on an Existing Car

Even though a tax refund is a good start to a new auto loan, there are many ways it can be used for an existing loan, as well. Here are just a few ideas of how to spend a refund on your car:

  • Pay down or pay off your existing loan
  • Make a large payment toward a new auto loan
  • Invest in maintenance by getting a bigger project taken care of, such as new tires or brakes
  • Use your refund for upgrades or additional options on a new vehicle
  • Purchase warranty coverage
  • Purchase GAP insurance

These are just a few options that could help you spend your tax refund on a car. Whatever you choose to do with the money, spending your refund on a vehicle is a good way to go.

Looking for a Place to Spend Your Refund?

If you decide to spend your tax refund on a down payment, you may be wondering where to get an auto loan when you have poor credit. At The Car Connection, we can help with that.

We work with a coast-to-coast network of special finance dealerships that have lenders available to help when you're struggling with unique credit issues. To get connected to a dealer near you, get started by filling out our fast and free car loan request form.


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