Using Your Tax Refund to Buy a New Car? Consider This

There are a few things you should know about buying a used car around tax refund time before plunking down your hard earned cash.

Using Your Tax Refund to Buy a New Car? Consider This

It's getting to be that time of year, once again. Tax time is upon us which means one of two things—you’re either paying Uncle Sam, or he’s getting ready to pay you. If you fall into the latter category, now might be the right time to consider buying a new-to-you car—but before you head down that path, there are a few things to consider.

Average Tax Refund in 2015: $3,218

According to the IRS, the average tax refund that most people received back in 2015, hovers right around $3,218. Those refunds usually land in people’s mailboxes around 4 weeks after they’ve filed their taxes. If you e-file that refund can end up in your account far sooner—as quickly as 24-hours after the IRS has your tax paperwork, in fact. That means that if you’ve already filed you could be flush with cash as we speak. If that’s the case, and you’re interested in getting a new used car, there are a few things you should know about buying a used car around tax refund time.

First, realize that you are not the only one getting a refund. While that’s often great for the economy and for all those people who really want to plan a vacation, it may not necessarily be the perfect time to buy a new-to-you car. Why? Well, the basic law of supply and demand comes into play. When people are flush with cash and looking for deals on used cars, the market shifts to become more favorable for sellers rather than buyers. Sellers can afford to hold out for higher prices for their used cars, than perhaps they could, say, right before the holidays. More people have more cash to put down on a used car and can be willing to pay more money than they may have before which can push prices up. Just be wary about when you start your search and purchase.

Second, take into consideration the fact that psychology is playing a major role. You’re suddenly $3000 “richer” than you were last month, right? Many people make rash financial decisions when they receive a sudden glut of unexpected income. Just because you have some found money doesn’t necessarily mean you should go out RIGHT now and pick up the first used car you see. Be sure to do your due diligence, get the car checked by a mechanic and calculate what you need, financially, before plunking down your hard earned cash for a new-to-you car.

Third, patience is paramount. Historically used car prices drop at the end of the year. The reason behind this is that new models are coming out and dealers and private sellers are usually looking toward the new year. They are usually more willing to negotiate on price which can result in a better deal for your bottom line. If you can hold onto your tax refund and use it as a down payment toward the latter half of the year, you could fare better than you would if you went out and bought a new-to-you car right now.

Finally—know that you may need to plunk down more than just your $3000 rebate. It can be tough to find a quality car out there for just $3k. That being said, Autotrader put together a pretty good list of cars you could get in 2015 for your tax refund. Many of the cars you can get for just $3k will be high mileage and may need some work—so be aware and do the right legwork to determine what exactly you want and can afford.

Keep in mind, you can also, always finance the remaining balance on that new to you car. You can either look to private financing or go through a bank or credit union and use your rebate as a small down payment on the right car for you. If you have been eyeballing a particular car here on Instamotor it’s worth looking at your options and waiting for your tax refund to see just what kind of machine you might be able to put in your garage.

Just don’t let your tax rebate go to your head and you can get a great new-to-you car for a reasonable price.

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Abigail BassettAbigail Bassett

Digital media content producer/consultant & former CNN senior producer, now running CN'TRL : Cars, Tech, Real Estate & Luxury.