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Buying a Car with your Tax Return?
It’s that time of year where people anticipate receiving their tax returns. You may be contemplating buying a new car but wondering how much car you can afford. While brand-new cars usually offer the lowest interest rates, used cars’ purchase prices are almost always significantly lower. As the SavingsAngel, I would urge you to consider pre-owned whenever possible. You can check out articles at SavingsAngel.com on the power of depreciation and how I recommend buying used vehicles. However, if you MUST buy new and you plan on keeping a car for more than 3 years then you should consider a late-model car.
You may be asking, “Josh! What’s a late-model car?” A late-model car is a car from the immediate prior year. So, for 2020, a late-model car is a 2019. Here are the benefits to buying a late-model car:
Good Interest Rates
While brand-new cars usually get the very best interest rates, late-model cars enjoy interest rates that are better than other older used cars. Do the math and compare your purchase savings vs. difference in interest over the life of the loan. I recommend doing this math at home on your computer – as opposed to doing so in the finance office of a car dealer. Your decision should be based on math – not any sort of pressure.
Dealerships begin transforming their stock to the next year’s model around July through September. While some people feel the need to rush out and get the latest and greatest right away, smart shoppers know when to snag a deal on a new car. In the first year’s quarter, dealerships offer huge discounts on late-model cars, not only to clear space on the lot but to meet sales quotas.
A new late-model car comes with a full warranty, or if it’s a certified pre-owned vehicle, there will be a partial warranty. If you buy a used car from a non-dealer you won’t benefit from any warranty. Do your math – but this may factor into the desire to reduce risk by having potential repairs covered.
Dealerships pay finance charges on cars and the longer they sit on the lot, the more the dealership pays. Use this to your advantage to get the best deal, making your tax return stretch further. ALWAYS be willing to stay cool and walk off the lot without committing to buy. Ensure that the dealer stays more motivated to sell than you are to buy. Remember that there are literally thousands of cars in your region to choose from and plenty of dealers within a few hours' drive. Dealers may not want you to read this – but as a consumer advocate, I want them to compete for your business – while you are free to take all the time you want. There is no rush. There's always great deals to be had.
Do Your Research
Doing your homework means you get the best bang for your tax buck! There are fantastic apps and websites like TrueCar, Autotrader, Edmunds, and Kelly Blue Book that will aid you in making a smart choice. I was able to save more than $6000 on my used car purchase by using comparison apps. Today, the majority of consumers spend most of their time researching online rather than at the dealership – which is always good practice.