How Refinancing a Car Loan Affects Your Taxes
For most people, the primary purpose of refinancing a car loan is to save money. When evaluating potential savings, it’s important to examine all the potential ways in which refinancing will impact your finances. In some situations, there may be tax implications associated with car loan refinance.
The good news is that for most people, refinancing a car loan won’t affect your taxes. However, there are certain situations where refinancing a car loan may impact the deductions you’re able to claim. If you have questions about how refinancing will affect your taxes, you should speak with your accountant to make sure you get the most accurate information as it applies to your specific situation. However, the following overview will cover most of the common topics you may have questions about.
Is Car Loan Refinance Tax Deductible?
Unfortunately, the tax incentives available to individuals paying a home mortgage aren’t extended to people paying a car loan. In most instances, you won’t be able to take a tax deduction on the interest you pay on your refinanced car loan.
However, there is one important exception. If you are self-employed or a business owner and you use your vehicle for work, you may be able to claim a tax deduction for interest paid on your refinanced car loan. This includes individuals who drive for companies like Uber or Lyft since you’re classified as an independent contractor, not an employee, when you work for these companies.
If you may qualify for tax deductions under this exception, talk with your accountant to ensure these deductions are handled properly. You will need to keep detailed records of how the vehicle is used for your job or your business.
Tax Implications Associated with Changes in Interest Rates When You Refinance Your Car Loan
Since your tax deductions are associated with the interest paid on your car loan, the amount of the deduction you can claim will decrease when you lower your interest rate. This means you’ll end up paying a higher tax bill at the end of the year. In this situation, you should crunch the numbers to determine how much this impacts the total amount of money you’re saving when you refinance your car loan. It’s always best to ask your accountant to confirm your calculations so you can make an accurate assessment regarding whether refinancing your car is worth it.
You Typically Don’t Have to Pay Taxes on a Refinanced Car
In most situations, you won’t have to pay sales tax when you refinance a car loan. This is because the vehicle isn’t being sold as part of the refinancing process. You are still the owner of the vehicle, even though a lender holds a lien on it. All that is changing is the financial institution holding the lien on your vehicle.
One situation which may trigger taxes to be paid as part of an auto refinance is when a co-signer is removed from the loan. When you remove a co-signer, that person is being released from their stake in the ownership of the vehicle. Keep in mind that the laws regarding how taxes are applied to changes in vehicle title often vary depending on where you live. To ensure you have accurate information regarding tax liability, it’s always best to consult with your accountant or a tax attorney if you’re removing a co-signer from the loan when you refinance.
iLending Makes Car Loan Refinance Easy and Hassle Free
If you’re struggling financially due to a burdensome car loan, auto refinance may be a great option to help you pay your bills each month. At iLending, our exclusive You First Approach™ makes car loan refinance easy and hassle free.
With our You First Approach™, you’ll work with one of our loan consultants who will guide you through the entire process. Your loan consultant will discuss your goals for refinancing in detail and then compare loans from our network of over 50 nationwide lenders. This extensive loan shopping process ensures we’re able to determine the best loan options to address your specific needs.
We’ll review the best solutions with you, answer any questions you may have, and help you choose the best loan to achieve your goals. Then, we’ll handle the entire refinancing process for you, including filling out all paperwork and following up with your current lender to make sure your existing loan is paid off properly. You’ll enjoy a smooth, hassle-free process from start to finish and have peace of mind that you’ve secured the best possible car refinance terms.
On average, customers save $132/month when they refinance a car with iLending. This additional money each month can make your life easier in many ways, allowing you to pay off other burdensome debts, build your savings, or enjoy leisure activities that are difficult to afford on your current budget.
Apply now to get the car loan refinance process started.
What would you do with an extra $132* in your pocket?
