NEW YORK (MainStreet) — Terrance Livingston, a hair styling student at the Milan Institute in San Antonio, is expecting a tax refund of $2,000 this year, and he's thinking about buying a car with it. The 21-year-old currently catches a ride to work and school from friends and family.

"I have $575 saved, and if I buy a car it will be a new one, so I need my refund to help with the down payment," Livingston told MainStreet.

Regardless of the interest rates on auto loans, Livingston said he wouldn't mind paying a car note for three years.

"If the family is in the cycle of needing a new car then timing is great," said Larry Rosenthal, certified financial planner and president of Rosenthal Wealth Management Group. "But just don't let the refund burn a hole in your pocket and use that as an excuse to purchase a new car when you really don't need one. You will need one during the 25 years of retirement."

Livingston's in luck. Auto loan rates in Houston are 3.05% compared to 3.44% in Philadelphia; they're even better in New York City (2.81%) and Los Angeles (2.96%), according to GoBankingRates.

"But I won't know if I need a car until I figure out where I am settling down," said Livingston.

Until then, Livingston is saving every penny of his income and refund.

"If a taxpayer's current car is really expensive to maintain, purchasing a new one might make for a smart choice but remember your current and potential new car are assets that depreciate and cost you money," said Joe Duran, chief executive officer with United Capital and author of The Money Code.

About 25% percent of Americans plan to buy a car with their tax refund, according to a new report from GoBankingRates. Cities with the best auto loan rates include Detroit at 2.67%, Long Beach, California at 2.71% and Oakland at 2.72%.

"Qualified car buyers can expect to find a three-year loan around just 3%," said Casey Bond, managing editor with GOBankingRates. "Three years ago, you'd pay double."

But with the average tax refund at $3,034, Rosenthal is an advocate of saving.

"If possible people should save their tax refund and even claim a different amount of exemptions so you get the money and don't over spend," Rosenthal told MainStreet. "It's obviously money that they didn't need throughout the year, so why not save it."

The study surveyed auto loan rates for three-, four- and five-year terms from banks and credit unions as of March 3, 2014.

"The average tax refund is equivalent to a 20% down payment on a $15,000 auto loan," Bond said. "Combined with today's very low interest rates, it is a great time to buy a car."

--Written by Juliette Fairley for MainStreet