Using Your Stimulus Check to Buy a Car

The current COVID-19 pandemic has caused millions of illnesses and hundreds of thousands of deaths. It has also wreaked havoc on the global economy. Massive industries such as airlines, cruise companies, and hotels have seen business trickle to a near halt. Many states in America have issued stay-at-home orders and shuttered non-essential businesses to slow the spread of the coronavirus, while reducing the operational capacities of establishments such as restaurants. Thus, millions of people are losing work opportunities and experiencing financial hardship.

In response, the federal government passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act. At over $2 trillion – or 10% of the United States’ gross domestic product – it was the largest economic stimulus package in the country’s history. A major tenet of this legislation is a direct stimulus payment to most adult Americans.

Do I Qualify for a Stimulus Check?

If you make less than $75,000 per year and file taxes as an individual, you’ll get the full amount of $1,200 from the government. Single tax filers who make up to $99,000 annually will receive less based on a sliding scale. Married couples filing jointly receive $2,400 if their combined income is $150,000 or less. The same reduced amounts apply to couples earning up to $198,000 combined. Single filers or couples filing jointly who earn above those limits will not receive a check. Households can also receive $500 per dependent child. Qualifications are based on your 2019 tax return, or last year's 2018 return if you didn’t file for 2019 by the time the legislation was passed.

Also, please note that we may use the phrase "stimulus check" as a generic term for the payment. Some taxpayers will end up receiving an actual check, but if the IRS has your direct deposit information from filing taxes, you'll see the money go directly to your bank account.

When You Shouldn't Use Your Stimulus Check to Buy a Car

The above income limits make it clear that this financial relief is intended for middle- and lower-class Americans, and those who may be experiencing economic hardship from the fallout of the coronavirus pandemic. If you’ve had any problems paying bills, making rent or mortgage payments, or buying necessities such as food or medical supplies, your stimulus money should be immediately put to those vital concerns.

If you have a car in good working order, or if you own a vehicle without any outstanding loans or liens, it may be a good idea to use the stimulus cash to supplement your savings or emergency fund. In uncertain times, having excess cash on hand for unforeseen expenses is always a safe bet.

When You Should Use Your Stimulus Check to Buy a Car

Recipients of the stimulus who are confident in their financial situation (and still have regular income) should feel free to spend what is essentially no-strings-attached cash from Washington however they want. There are a number of ways to use the money to buy a car.

Using Your Stimulus Check to Buy a New Car

If you’re in the market for a new vehicle, consider yourself lucky. Most automakers are offering great incentives to entice customers and ease any potential financial strain. They also want to increase their own vehicle sales, making it an excellent opportunity to buy a new car. The best of these deals include no-interest financing for five, six, or even seven years. Normally, we think that 72-month and 84-month loans are a bad idea. If you stretch out a loan over a long period, it makes your monthly payments less, but that also means you probably can't comfortably afford the car to begin with. Additionally, a longer loan term means there's more time for interest to accrue, meaning you'll ultimately pay more for the same car than you would with a shorter loan.

However, entering into a lengthy loan with no interest accruing is a less risky endeavor. Certain car brands are combining those offers with deferred payments for a few months, or offer forgiveness in certain situations if you can't make your payment. For a comprehensive look at most brands' response to the pandemic. We recommend putting down as much money as you can upfront when buying a car, even though you may be tempted by special low-interest financing offers. A stimulus check of a few thousand dollars for a family goes a long way to meeting the recommended down payment of 20% of a car's value.

Using Your Stimulus Check to Buy a Used Car

If you're shopping for a used car, you'll likely see lower prices than you would for the new version of the vehicle, but you probably won’t be able to take advantage of the lowest interest rates that the dealer can offer. In that case, it's advantageous to use your stimulus check to help put down as much money as possible. The less money you have to borrow, the less you'll have to pay back. Less interest will accrue, as well.

Whether you're buying new or used, the cost of a car is just an initial expense. You also have to take into account recurring expenditures such as maintenance, taxes and fees, and insurance. For many vehicles in our used car rankings, we tabulate how much you can expect to spend on items like these over a five-year period. A used car with a low sales price may seem like a good deal – especially if your stimulus payment covers a big chunk of that – but it may end up costing you more than you thought in the long run

Using Your Stimulus Check to Pay Down an Existing Loan

If you currently have a car loan that’s longer than you think it should be, or if you think you overpaid for a vehicle, you might be in an upside-down auto loan. Consider using the stimulus money to pay against the principal of the loan. Doing so can drastically reduce the amount of interest you’ll pay over the entire term of the loan. Chipping away at your total amount owed is one of the best ways to get out of an upside-down auto loan.

The Coronavirus and Car Insurance

Many insurance companies are able to provide you with an accurate quote if you tell them the exact vehicle you're considering, as well as factors such as how much you plan to drive, your desired coverage limits, and demographic data about yourself.

Like the car companies, insurance companies are reacting to the current pandemic. Most major insurers are crediting current policyholders between 15 and 25% of their premiums as a result of people staying home and driving less. They're also providing these refunds to stay ahead of regulators or other consumer-advocacy groups that would press them to return even more money. Prospective car shoppers who may be adding an additional vehicle to their garage can likely see some insurance savings by putting another car on their current policy.