Most people understand the economic advantages of buying a car from a used car dealership, but few understand the intricacies of financing a purchase. The following guide explains how much you should spend on an initial down payment for a used car and how this year’s tax season factors into that equation. 

How Much Should You Put Down? 

If you make a down payment that’s 20% or more of the cost of the car, you could qualify for better loan terms, including a lower interest rate. A larger down payment also helps you qualify for financing, even if you have bad credit or no credit history.

Depending on the conditions of your loan, paying off the principal on a car loan as quickly as possible may reduce your overall interest expense.  

How Much Can You Afford to Put Down? 

Sometimes a 20% down payment isn’t feasible. It's better to pay less upfront than to miss paying off a monthly installment because you’re short of cash. Falling behind on a car loan will affect your credit rating and may lead to an increase in the price you pay for insurance.  

To protect yourself against the unexpected, establish an emergency reserve fund. Put enough money in a savings account to cover three months of expenses to cover rent or mortgage, loans, groceries, insurance, and utilities. Then, assess your remaining income to come up with an amount you can afford to pay each month to finance a car purchase.

How Does Tax Season Factor Into the Equation? 

In 2019, 73.2% of Americans who filed tax returns received a refund. The average refund was around $2,700. By putting your tax refund toward a down payment on a used car, you’ll immediately increase your equity in the vehicle and help to lower your interest rate and monthly payments.  

For this reason, used car dealerships see a surge of new customers  during tax season. If you need a new vehicle in 2020, reserving your refund for a down payment could be a smart move.

If you need a new car, visit Express Motors, a trusted used car dealership in Dayton, OH. They always have dozens of quality used cars on their lot and an inventory that rotates weekly. To learn more about this family-owned business, visit their website, or call (937) 222-7777 to talk about affordable warrantied vehicles. You can also connect with them on Facebook for more information about how they’ll help you find the perfect used car.