4. Refinance your current loan
Are you an unfortunate used-car buyer who's been saddled with an 18 percent interest loan? By refinancing at a competitive rate, you could slash your monthly payments in half. If your car loan has a high interest rate, or you have improved your credit rating since you took out the loan, you could use your tax refund as an opportunity to structure a better loan. Use all or part of the refund to reduce the principal on the loan and get a better interest rate on the balance.
5. Fix or upgrade your current car
Many cars, provided they are well maintained, can be driven well past 100,000 miles these days. And in many cases, maintaining a car you own costs much less than buying or leasing a new one. With that in mind, where do you spend your upgrade money?
A new set of new tires can greatly improve ride quality, reduce road noise and even improve fuel economy. A major tune-up further boosts fuel economy, smooths out a rough idle and prolongs a vehicle's life.
Other inexpensive repairs that can go a long way to rekindling your pride of ownership include clearing foggy headlights, getting a thorough detail, and repairing interior rips and tears. New floor mats alone can improve an older car's interior appearance. Dent removal and paint touch-ups can often be done by a mobile service for just a few hundred dollars.
These fixes certainly don't replace the thrill of new car smell. They will, however, make driving your current car more enjoyable and will likely prolong its life, reducing your need to get a new car and saving you money down the road.
Final Tip: Be Prepared
If, after considering all these options, you decide to buy a new car, remember that all the rules of smart car shopping still apply. One last piece of advice: Don't simply walk on the car lot carrying your IRS refund check, ready to be signed over. This will send the wrong message to the car salesperson, signaling that you are perhaps desperate and unprepared for the car buying experience.
Instead, tuck your check in the bank and decide ahead of time whether to lease, buy new or buy used. Only by planning ahead and applying sound advice to car buying can you make the most of your refund and save money in the long run.