SARS ‘bonus’ for anyone with a car loan in South Africa

South Africans who receive a tax refund have an opportunity to reduce their vehicle debt or build an emergency fund to cover an expensive repair.

This is according to Marnus Mostert, a franchise principal and financial adviser at Consult Momentum, who explained that motorists should rethink how they use their South African Revenue Service (SARS) refund this tax season.

Mostert said that individuals should reframe how they see the refund. Instead of treating it like a bonus, it should be considered as funds being returned to the taxpayer.

“Before your SARS refund disappears into a holiday or shopping spree, consider how that lump sum could change your financial future,” he said.

“Instead, see your tax refund for what it is: your money being returned to you. Your tax refund is not “extra” cash; it was yours all along – and like the rest of your hard-earned money, it should help you build future security.”

Mostert said that individuals should ask themselves the following four questions:

• What is the most expensive thing on my balance sheet?
• What happens if something goes wrong next month?
• Am I leaving valuable tax breaks on the table?
• What do I want this money to do?

For motorists with car loans, a tax refund is an opportunity to reduce their outstanding balance.

“If expensive debt is eating into your monthly budget and stress levels, your refund could help you get ahead,” he explained.

“Putting extra money towards what you owe can reduce the interest you pay and free up more of your income over time.”

Putting the money towards an outstanding car loan is a strategic way to make sure that a high-interest account is paid off faster, allowing those freed-up funds to be put towards other debts.

Alternatively, motorists can put their SARS refund towards an emergency fund that can be used for something like car maintenance.

“Life has a habit of springing surprises just when you think you’re getting ahead. The burst geyser. The car that suddenly needs an expensive repair,” said Mostert.

“An emergency fund gives you something to fall back on when an unexpected bill arrives, helping you cover it without adding to your debt.”

Smart ways motorists can use their tax refund

WesBank has similar advice for motorists who have received their tax refund, recommending that they use the money to pay off outstanding vehicle debts.

The finance provider noted that a lump-sum tax refund allocated directly to a vehicle loan account can significantly lower the principal balance, reducing the total interest paid over the life of the agreement.

If an individual has fallen behind on their payments due to financial strain, their SARS refund could be used to clear arrears and prevent legal action or vehicle repossession.

Balloon payments are another good example, as South Africans who take out a finance agreement with a balloon face a large payment at the end of their contract.

Using a lump sum like a tax refund is an excellent way to prepare for this final payment, as motorists are often caught off-guard and need to refinance the balloon.

A refinanced balloon can turn into 12 to 48 months’ worth of extra payments with interest, so it’s in your best interest to ensure you can pay it when your vehicle loan term comes to an end.