So, that fat tax refund for which you've been obsessively checking your bank account online has already been designated to go toward one thing and one thing only: a car. You're not alone. Depending on which study you believe, anywhere from 17 percent to a quarter of Americans plan to blow this year's windfall on a new set of wheels.
According to a study conducted by interest-rate aggregator GOBankingRates, 25 percent of Americans plan to buy a new car with their tax refund. The average refund, the study states, is $3,034, potentially enough to cover the down payment on an auto loan — for which interest rates are currently low. In addition to the "when," the "where" is also a consideration in purchasing a new car. GOBankingRates' survey indicates that the cities with the lowest auto-loan rates right now are Detroit (2.67 percent), Los Angeles (2.96 percent) and Houston (3.05 percent).
"The average tax refund is equivalent to a 20 percent down payment on a $15,000 auto loan; combined with today's very low interest rates, it is a great time to buy a car," GOBankingRates Managing Editor Casey Bond said in a statement. "In fact, qualified buyers can expect to find a three-year loan around just 3 percent. Three years ago, you'd pay double."
In a separate survey, used-car retailer CarMax concluded that 1 in 6 of those expecting a tax refund are likely to use it toward the purchase of a car. The study states that among that group, those most likely to purchase a vehicle with the money are younger than 35 (29 percent), parents (26 percent) and residents of the South (22 percent). The previous year, about 1 in 7 reported having spent their tax refund on a large purchase, such as a car.
CarMax offered the following tips for tax-season car shoppers:
- Do your research. Start online with photos, reviews and financing terms before you test drive.
- Buy for quality, not necessarily price. Make sure the vehicle you ultimately choose undergoes a rigorous inspection.
- Narrow your options. Select a few vehicles to test drive in advance.
- Ask questions so that you fully understand the terms of your sale before signing anything.
If you're not in the market for a new car, you also might want to consider using your refund to pay down your existing car loan. Bankrate.com suggests that if you don't have any high-interest credit cards to pay off or other more pressing financial obligations to attend to, focus on your auto loans. "The sooner you pay off your cars, the sooner you can reallocate those monthly payments to other priorities," the site states.