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Buying A Car With Your Tax Refund? 5 Tips For Success In 2025

Key Takeaways

  • Buying a car with your tax refund can work perfectly, but only with adequate preparation.
  • Car shoppers in 2025 have free tools at their fingertips that make finding deals easier than ever.
  • Although new car deals get the spotlight, buying used or leasing makes more sense for many.

If you’re planning to buy a car with your tax refund this year, you’re not alone. Tax season is one of the most popular times for car buying, as a lump sum refund can serve as the perfect down payment for your next vehicle. But in 2025, buying a car comes with unique challenges and opportunities. With thousands of dollars on the line, it’s time to play it smart. To help you make informed car buying decisions this tax season, we’ve compiled five tips to help you navigate 2025’s car market with confidence.

1. Budget Before You Buy

CarEdge Calculators promotional image with a blue SUV and different car-related calculator options

Buying a car is about much more than just the sticker price or monthly payment. To avoid surprises down the road, you’ll need to budget for the full cost of ownership.

Insurance costs are on the rise in 2025, with many drivers spending an extra $100 or more per month on coverage. Maintenance costs vary depending on the car’s make and model, and fuel prices fluctuate regionally. Tools like the CarEdge Research Hub and Car Buying Calculators can help you estimate these expenses and compare ownership costs across different vehicles.

Pro Tip: Don’t forget taxes, registration fees, and dealership fees. Always request an out-the-door price quote to get the full picture.

👉 Budget with this Free Out-the-Door Car Price Calculator

2. Use Online Tools to Research Your Options

Car comparison tool interface showing side-by-side vehicle comparisons with key features.

In 2025, car buyers have access to more free resources than ever before. These tools can help you find the perfect car for your budget and lifestyle without stepping foot in a dealership.

By spending time researching before you buy, you’ll walk into the dealership prepared to negotiate like a pro.

👉 Ready for a pro to negotiate your deal? Learn more about CarEdge’s Car Buying Service.

3. Decide: Buy New, Used, or Lease?

new vs used car

Deciding between a new, used, or leased vehicle can feel overwhelming, but understanding the pros and cons of each option will help you choose the best fit for your needs:

  • New Cars:
    • Best financing options, including 0% APR offers for qualified buyers.
    • Full manufacturer warranty for peace of mind.
    • Clean vehicle history with no prior wear and tear.
  • Used Cars:
    • Significantly more affordable – 50% cheaper than new cars on average.
    • Depreciation has already taken its biggest hit.
    • Requires a pre-purchase inspection to avoid surprises.
  • Leased Vehicles:

Learn more about the pros and cons of buying new or used (FREE guide)

Once you’ve decided the right vehicle ownership path for you, it’s time to come up with a short list of makes and models that you’re looking to test drive. Remember, the 100% free CarEdge Research Hub is the place to start. 

Pro Tip: Evaluate your driving habits and long-term ownership plans before committing. If you tend to trade up often, buying new can cost you tens of thousands of dollars in depreciation.

4. Take Advantage of Manufacturer Incentives

how to finance a car

Before heading to the dealership, review the latest manufacturer incentives to find the best deals. To the benefit of shoppers, year-end deals have continued into 2025. The best deals are for remaining 2024 inventory, with up to 15% off MSRP within reach.  

🥳 All the Best Deals, Handpicked For You

Check out CarEdge Insights to explore local market trends and identify models with higher inventory levels – these cars are most negotiable. By aligning your search with market data, you can get a better deal on your next ride. It’s always a buyer’s market if you know where to shop!

5. Prequalify for Financing

Even if you plan to finance your car through the dealership, prequalifying for a loan with a local bank or credit union gives you more negotiating power. Prequalification doesn’t affect your credit score and provides a clearer picture of your budget.

It’s also important to know what to expect in 2025’s high interest rate environment. In early 2025, the average new car loan rate is just under 10% APR, and used car loans average near 14% APR. Buyers with above average credit scores will qualify for lower rates, including today’s 0% APR offers.

Bringing your own financing to the table allows you to compare rates and terms offered by the dealership. If the dealership’s financing is better, great! If not, you’ll already have a solid option lined up.

Pro Tip: Use free online calculators to determine how much car you can afford before visiting the lot.

Put Your Tax Refund to Work

In 2025, buying a car with your tax refund is an excellent way to reduce your overall loan amount or even pay for a car outright. By budgeting wisely, leveraging free research tools, and taking advantage of financing options, you can make your refund work harder for you.

At CarEdge, we’ve introduced a powerful new tool to help you negotiate like a pro: Free Dealer Invoice Pricing. This feature gives you insider access to what dealers paid for the car, helping you secure the best deal possible. Ready to put your tax refund to good use? Start your car-buying journey with CarEdge today.

Save time and skip dealership!

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Last updated Jan 24, 2025

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