Making More Money

Tax return season is also prime car buying season, mostly because that's when a lot of ordinary consumers have a big chunk of money in hand that they're able to use to use for either a down payment or a cash purchase. If that's what you're thinking of doing, here are some things to consider.

1.) Think about dividing up your money between debt and the down payment.

There are two good reasons to consider putting some of your tax return on any high-interest credit cards that you ran up over the holidays or any old bills that you have floating around. First, if you do it right away and put the rest of the money in the bank for the next month or so until your credit report has time to update, you may raise your credit score. The higher your score, the lower the interest rate you can wrangle when you go to finance that new car.

Second, paying down (or paying off) a few smaller cards or monthly bills could make affording the monthly payment for a new or gently used car more affordable. If you're thinking that you were only going to look at cars you could purchase outright in order to avoid the payment, you may widen your options by eliminating some of your monthly debt now and opting for a small car loan in order to get a better car.

2.) If you can pull together a little more money, think about applying the tax return to the car payments.

There's another way to break out your tax return and make it work for you in a couple of different ways. If you can pull together the minimum down payment on a vehicle (which should be about 10% or more of a used car's price and about 20% of a new car's price), you may be able to negotiate a price that your tax return can cover over the course of the year. That way, you never feel the bite of the car loan coming out of your pocket. 

Granted, that part does take a little willpower, because you have to throw that money into the bank and act like it doesn't exist. You might want to set up an account that pays the car payment automatically and put the money directly in there. That way, it's less of a temptation to borrow from. Given that the average tax return in 2015 was $3,120, that would be enough to cover 12 months of car payments as long as you stayed below the $260 mark. If your returns are fairly consistent from year to year, that could be a way to earn interest on your money and still use it to get the car you want or need.

For more information, talk to a professional like Frontier Community Credit Union.