How to optimize your tax refund when you buy or lease a car

Tax season is here – a time when many people receive the boost of a refund, greater financial freedom and start thinking about new opportunities ahead.¹

Last year’s tax refund averaged more than $3,000² and, whether you’re planning the return of fair-weather road trips in a new vehicle or would like to pay off an existing ride, there are great ways to put that kind of money to use on your auto financing.

Let’s take a look at some scenarios, starting with a vehicle purchase. See how to use a tax refund to buy a car in seven simple steps.

Benefits of using a tax refund to buy or lease

Get a lower monthly payment

A refund of around $3,000 will go a significant way toward covering the typical 12% down payment on a new vehicle, which has an average price of about $48,000, according to Kelley Blue Book. And it will almost cover 12% down on the average price of a used vehicle, which is near to $29,500, according to Edmunds.

By using Chrysler Capital’s finance calculator, you can work out to what extent this cash may lower a monthly payment.³ Let’s say you’re interested in buying a new full-size SUV for $40,000 along with a 72-month financing term, 5.9% APR and a trade-in worth $22,000⁴ – an average trade-in value. Entering these details into the calculator, with the trade-in sum going into the down payment field, shows that the payment is estimated to be $297, excluding taxes and fees. Add a $3,000 tax refund on top of the trade-in, effectively making a down payment of $25,000, and the monthly payment falls to $248. That results in a saving of $49 each month and may save you money on interest charges, too.

Pay for upfront lease costs

If you’re looking to lease, then you may wish to use your refund dollars for the money due at signing. This is the amount paid at the time you sign the contract and includes costs such as the acquisition fee and the first month’s payment.

Pay for other auto expenses

Once you’ve settled on a vehicle, there are other expenses for which a tax refund could come in handy. If you’re purchasing a new vehicle with GAP coverage, you might want to use your tax refund to pay for the coverage. Buying a preowned vehicle with warranty coverage? Similarly, that money could be used for the cost of the warranty. And, whether you decide to purchase new, preowned or lease a vehicle, you may choose to spend your tax refund on the necessity of auto insurance.

Allocate money for payments and pay ahead

Another option is to set aside your tax refund for the monthly payments on your newly purchased or leased vehicle. You can do this by putting the money in a secure bank account and using it when payments are due. You could even make additional payments. Although you will still be paying any accrued interest, these additional payments will enable you to pay off your financing more quickly. For convenience, Chrysler Capital customers can set up Auto Pay so deductions are automatically made by the payment due date.

Get back on track

It’s easy to miss a payment here and there when money is tight. If you’re past due on your existing auto contract, it’s important to catch up to fulfill your commitments and avoid potential added interest charges and fees. Consider using your tax refund to get current on your account and, once you’re up to date, perhaps pay down some of the principal balance. With Chrysler Capital, you can simply log in to MyAccount to make your payment or select from a range of other easy payment options.

Pay off your vehicle completely

When a tax refund amount is large enough, it could be used to pay off your auto loan completely. A standard payoff consists of the principal balance that is owed plus any accrued interest, as well as any fees or other charges that may have accrued. Chrysler Capital enables you to log into MyAccount or call us to get your payoff amount and follow our straightforward process to complete the full payoff of your vehicle.

Shop the latest deals on FCA US cars, trucks and SUVs

Not only is tax season an opportune time to get a new vehicle, but a variety of incentives are available to sweeten the deal. Browse the latest purchase and lease offers on Chrysler, Dodge, Jeep_®, Ram, Wagoneer, Alfa Romeo and FIAT^® brand vehicles, locate your nearest dealer and prequalify for financing online.

¹These statements are informational only and should not be construed as legal, financial, tax or other professional advice. Please consult a tax professional for any tax-related questions.
²Based on IRS 2023 tax filing season statistics.
³The referenced calculator and example provided are meant for educational and illustrative purposes only. The calculator estimates monthly payments solely based on the information you provide. We do not guarantee the availability of the illustrated terms or your eligibility for any product referenced. The estimated monthly payments generated from the calculator do not constitute a finance offer.
⁴Source: January 2023 trade-in values from Edmunds, quoted in Business Insider, March 2023.