A 2016 survey by GOBankingRates.com found that only 5 percent of Americans plan to spend their tax refund on a major purchase, such as a home or a car. Meanwhile, more than half of the respondents said they plan to be financially responsible with their tax refunds and use them to pay off debt or to increase savings.
Saving your tax refund instead of spending it is a noble way to use your refund — but that doesn't mean you should automatically cross off buying a car. In some cases, it makes sense to use your tax refund to buy a new car.
Why You Should Use Your Tax Refund to Buy a New Car
Purchasing a new car can be expensive. According to Kelley Blue Book, the average new car transaction price (as of December 2015) is $34,428. And, another GOBankingRates study that examined car costs in the U.S. found that on top of auto payments, U.S. car owners should expect to pay an additional $11,227 on average to own and maintain a car for three years.
When it comes to covering these costs, every little bit helps — and that's where you tax refund comes in. While the IRS is still processing tax returns, the average tax refund as of April 1, 2016, is $2,989. That's nearly enough for a 20 percent down payment on a $15,000 car loan.
Don't miss this year's most important tax dates to know:
Currently, now is a good time to use your tax refund to buy a new car rather than later in the year because the Federal Reserve will likely raise interest rates this year. Yes, the Fed already started raising interest rates in late 2015, but according to Interest.com, the average cost of a new car loan "is only up about a quarter of a percentage point over March 2015." So currently, rates aren't having too much of an impact on car loans.
But eventually, auto lenders will need to increase the cost of borrowing to match the national rising rate trend. And as any car owner knows, the higher your auto loan rate, the more interest you pay on your car loan.
For anyone considering a new vehicle purchase, this tax season might be your last chance to get in on an auto loan at an affordable rate.
Average Auto Loan Rates in the United States
According to Informa Research Services, the national average rate on a new car loan with a five-year term is 3.58%* — which is nearly as high as a 30-year fixed jumbo mortgage loan:
National Average Interest Rate
New Auto Loan – 5 Years
Used Auto Loan – 2 Years Old – 4 Years
30-Year Fixed Jumbo Mortgage
30-Year Fixed Conforming Mortgage
5/1 Year ARM Conforming Mortgage
Before interest rates on car loans get any higher, use your tax refund to get the new car you've always wanted.
*Rates are current as of 4/12/2016.
Casey Bond contributed to the reporting for this article.
This article originally appeared on GOBankingRates.com: Average Tax Refund Is Nearly $3,000 — And You Should Spend It on a New Car