According to the Internal Revenue Service (IRS), the average income tax refund is running about $2,815 this year — or some $217 billion. Every year, a good chunk of that money winds its way toward the local car dealerships for necessary — and some unnecessary — transportation upgrades. If you’re one of those who need to kick Uncle Sam’s cash toward your wheels, here’s five ways to do it wisely:
1. Down Payment On A New Car
While $2,815 is a lot of money, it’s not that much money when the average new car carries an average transaction cost of roughly $35,000. It isn’t even a ten percent down payment.
But if that $2,815 is combined with trading in a used car, suddenly it’s a worthwhile contribution to a new purchase. If, for example, a five-year old Honda Civic EX sedan is being traded in for $10,000, then that leaves $22,185 to finance the average new car. For many people, that’s enough: The average new car loan is now $28,686, and it stretches out to an incredible 67.6 months – that’s five and a half years plus a month and a two days – at $492 per month.
But maybe $2,815 could be better used when indulging your car jones. Don’t talk yourself into spending money you don’t need to spend.
2. Lease A New Car
After credit tightened during 2008 and 2009 the percentage of new vehicles being leased instead of purchased outright collapsed. But the residual values of used cars and trucks has improved, there’s more money out there to finance a lease, and the manufacturers have been aggressively promoting leases to consumers. Automotive News reports that the percentage of new full-size pickup trucks being delivered on leases has increased from less than 3 percent of sales in 2010 to more than 14 percent.
Look at all the lease deals currently offered by practically every mainstream manufacturer at $199 per month. Honda Accords, Toyota Camrys, Hyundai Sonatas, Ford Fusions, Subaru Legacys and even SUVs like the Jeep Cherokee. That $199-per-month price point has become magical in the lease marketplace.
The trick is having the money to put down at lease signing – you’re financing part of the car’s depreciation up front to get down to the $199 payment plan. Fortunately most of these leases take less than $2,815 at signing to start the lease.
The downside: Leasing is a trap for many people, since it leaves you with nothing in hand at the end of the two- or three-year term, and you have to roll right into another lease. But for a few people with smart tax accountants and a good bead on their personal finances and vehicle use, it’s a smart move. Again, be honest with yourself.
3. Buy An Old Miata
There simply isn’t a better way to have cheap fun with a car than buying an old Mazda Miata sports car. The Miata has been in production since 1990 and they’ve sold in huge numbers, so they’re all over the place and cheap. They’re also robust, simple, easy to work on and a ridiculous amount of fun to drive.
Miatas for $3,034 or less aren’t going to be pristine machines, but older models with odometers spinning well into six figures. But even well-worn Miatas can be revived with some straightforward maintenance and the replacement of worn parts. So use next year’s tax refund to finance that and by mid-2016 you’ll have a sweet natured, real sports car.
If you’re thinking here about getting an old American muscle car instead, think again. Prices for classic Camaros, Mustangs, Chargers and the like are through the roof. A basket case will cost well more than $2,815. Even worse are old German luxury cars like a cheap Audi S6, Jaguar or Mercedes. There’s nothing quite as grindingly expensive as an old Mercedes.
4. Clean and Fix Everything
By the time a car or truck approaches or passes a decade old, simple things have begun to wear out. The rubber brake pedal pad cracks apart and falls off; a side view mirror falls off; there’s a tear in the driver’s seat upholstery; the air intake hose starts to leak. Little things that accumulate and make an otherwise sound vehicle sound, feel and smell as if it’s rolling bucket of nuts, bolts and petrified KFC pieces.
With $2,815 in hand, you can easily afford to thoroughly clean your vehicle – even if that means paying someone to do it. Go through and remove the seats to get the garbage that has accumulated under them. Shampoo the carpets and replace them if they’re too gruesome. Replace the interior’s burnt-out light bulbs, put on new seat covers, add a new stereo with Bluetooth… all things that aren’t tough but make a big difference on how a car looks, operates and feels in daily use.
Chances are that putting your current car in the best shape possible will cost far less than $2,815. Probably even less than $1,000. So, why not do it?
5. Get New Wheels and Tires
All the important things your car does – accelerating, braking and turning – depend on your tires. Those four rubber donuts are never worth scrimping on. Ever.
So when your check arrives from the IRS, go look at your tires. If they’re bald, cupped, dried out or otherwise generally worn out, get new tires. And not just the off-brand, cheapest tires possible, but the best tires you can afford.
Making a conscientious tire purchasing decision means more than wandering to the nearest tire store and hoping the guy behind the counter isn’t looking to dump old inventory on you. Instead do some research on tire retail sites like Tire Rack or Discount Tire that have large inventories from various tire manufacturers.
Usually the prices for tires from online retailers are lower than those offered by local shops. That’s particularly true of uncommon size or special applications like snow or racing tires. The Tire Rack, for instance, has agreement with local shops around the country so that you can order tires on their site for drop shipping to a shop near you for mounting and balancing on your car.
And unless your car is something exotic like a Lamborghini or Koenigsegg, it’s unlikely you’ll spend your entire $2,815 on rubber. So treat your car to a new set of wheels while you’re at it too. Nothing transforms a car’s appearance more easily or rapidly than a wheel change.
Of course there are a million other ways to spend money on your car. That’s the beauty of money; you can do practically anything with it. But the easiest thing to do with money is waste it.