One of the most anticipated times of the year is well among us all. That time is…. TAX TIME! Some people love it and some people hate it! Either way, if you are expecting a refund from your tax return, sometimes it may be difficult on which route is best to go if you are looking to finance a car with a bad credit. For example, you may want to purchase a new or used car and part of that tax return could be used as a down payment. Another example would be using some of that money to pay off some debt that has been in the back of your mind for months or years! Either way, the great part about either scenario is the fact that you actually have the money to make those decisions. Lets begin and go over How To Use Your Tax Refund When Financing A Car With Bad Credit!

1. Get An Updated Credit Report

Less than 20% of Americans know whats exactly on their credit reports. Which means if there are inaccuracies, out dated information, or some things that need clearing up. Also, its best to know your credit score prior to walking inside of a dealership as they offer many programs that you may qualify for. You can obtain a copy of your credit report and score from the exact same place the dealerships use and thats www.myfico.com Transunion for a one time $19.95 fee. You can also use www.creditkarma.com for free, but keep in mind that is a completely different algorithm that is used by less than 10% of lenders nationwide. Credit Karma will give you a score but it wont be what most dealerships and car lots use unfortunately.

2. Consider Hiring A Credit Consultant

Of course this would be a recommendation as I myself am a Certified FICO credit consultant. The reason why this is a recommendation is simply because your tax refund can be used to get some things removed properly from your credit report which will increase your score and more than likely give you a lower interest rate which will equal a lower monthly payment as well. At GoSimplyPro Credit Consultation, you can get started for as low as $125! There are many companies that offer similar services as well. Just be sure to check and see their testimonials and if they are FICO Certified Professionals. 

3. Money Down or Pay Down Debt: Choose Both

I always tell the story of the lady who had a 530 credit score and she wanted to purchase a car with an additional $5000 as a down payment. After looking at her credit score, I quickly realized that she had a little under $4K in collections and such. I explained to her that she should talk to a credit consultation company about paying the collections, getting them removed, and improving her credit score. This would give her a lower interest rate and $1000 left to use as a down payment. She decided not to do as I suggested, and proceeded to put down the $5000. By the way, if she were to take my advice, her score would probably increase over 80-100 points in a month or less and she would have left the dealership with an interest rate of 8%-13% vs the 23% that she left with……but what do I know 🙂 In short, use some of the refund to pay existing bad debts down and some to use as a down payment. For example, if you are getting $2000 back for your tax refund, split 50/50 for bad debt and down payment. Of course, all credit reports are different and her situation may not be like others. But this goes to show you how tax time is the perfect time to place a $1000 or more towards debt instead of a down payment. You don’t have to pay off the entire debt amount at all, but at least show the banks that you care about previous financial obligations that turned sour. 

4. Be Prepared For The Double Digit Interest Rate

Some people forget that they have bad credit or they think it all just goes away over time. The banks know that during tax time, people with low credit scores will try to finance cars, and there are many banks to help people get approved. Those banks will be more than happy to hand out double digit interest rates and older model cars. Your tax refund can help you get a nicer car if you use most of the refund for a down payment, but you will be stuck in the car for a long time and probably end up paying double what the car is worth. Keep in mind, you are not marrying the car, but you must understand that you should make some payments on time and later refinance the car down the line.  

The Bottom Line

Hopefully this information helped you understand more about How To Use Your Tax Refund When Financing A Car With Bad Credit. As I mentioned above, everyone’s situation will be different as credit scores and reports are all different. After selling over 500 cars in less than 4 years, doing sales, some finance, and management at a franchise dealership, I see what the banks are looking for in an applicant with a low credit score and cash down. Please be sure to share this article with someone you know may benefit from it.