Purchasing a new vehicle isn’t cheap. It can be enticing to get a better deal through avoiding sales tax by shopping out-of-state. Before traveling to another state, it’s important to consider all aspects of the car buying process. This article will cover the following topics to ultimately help you decide whether buying a car out of state is right for you:
What are the pros and cons of purchasing a car in another state?
What are the best and worst states for up-front car expenses?
What are the best and worst states for unexpected fees?
What states don’t require sales tax?
What to Consider Before Purchasing An Out-of-State Vehicle
Each state has its own rules and regulations that have to be met to make a vehicle street legal. Research the following areas to be prepared for an out-of-state car purchase.
Collection of Sales Tax
Sales tax in the United States can range from 2.9% to 7.25%, with an average of 5.09%. In 2019, the average price of a new vehicle was $40,000. If an individual were to purchase a $40,000 vehicle and deduct the average sales tax rate of 5.09%, they would save approximately $2,036 on their purchase. Avoiding sales tax can be incredibly beneficial, but it is only possible in some states, as it is governed at the state level. To learn more about what states don’t levy sales tax, jump to the “Which States Don’t Have Sales Tax?” section.
Registration and Emissions Requirements
Before registering your vehicle in your home state, you may need to obtain a temporary registration if you’re planning to drive the car back across state lines. If you’re purchasing a car from a dealership, they can likely help you with the registration process. On the other hand, if you’re purchasing from a private seller, you’ll need to know the state’s requirements for temporary registration and visit the local DMV to apply for it yourself. Visit WithClutch to learn about registration and emissions requirements, as well as find out how to apply for temporary registration in the most popular states.
Transporting the Vehicle Back Across State Lines
As previously stated, if you plan to drive your new vehicle back to your home state, you’ll want to obtain a temporary registration so that you are following that state’s vehicle regulations. Instead of driving it back, you may decide to have it shipped home. Before having it shipped, make sure to research reliable shipping companies that provide reasonable rates. Montway Auto and Sherpa Auto Transport are two companies that are highly rated for guaranteed pickup/delivery date and locked-in quotes, respectively. If you are picking up your vehicle from a dealership, ask your dealer if they have any relationships with companies that can ship your new car for a discounted price. Otherwise, spend some more time comparing your options.
Car Insurance
Based on your current car insurance policy provider, you may need to have coverage for your new car before you buy it. Some companies will extend coverage to new vehicle purchases as long as you notify them beforehand. Other policies may not offer this extension, so it is best to check with your policyholder for their requirements and rules before purchasing a car. Additionally, if you choose to finance a vehicle, lenders generally require specific types of insurance that often includes liability insurance.
Advantages and Disadvantages of Purchasing a Vehicle Out-of-State
Make sure to compare the advantages and disadvantages of buying a car out-of-state to make the best-informed decision.
Advantages
For car enthusiasts searching for a rare model vehicle, it may be difficult to locate the right vehicle if you limit your search radius to your home state. By crossing state lines, you widen your search pool and gain a better chance of finding what you’re looking for. Also, a car’s value is determined by several factors, including where the car is located. It’s plausible that an out-of-state dealership would sell the same model vehicle, with identical specs at a lower purchase price than what your local dealership is charging. A good idea is to contact out-of-state dealerships to gather several quotes to compare the out-of-state cost versus the home state cost. Remember to account for the sales tax that is applied by the state you are buying from.
Disadvantages
The reason many car buyers choose not to purchase a car out of state is likely due to the amount of research and preparation that goes into the process. Picking out a car can become complicated since each state has its requirements for sales tax, registration, emissions, and car insurance. On top of that, there’s the hassle of figuring out how to transport a new vehicle back home. Obtaining a temporary registration to drive it back or using a shipping company are obvious options, but both require extra steps and potentially add more costs to the overall expense.
What is the Best and Worst State for Up-Front Costs?
The up-front cost or the sticker price of the car is generally what car buyers pay attention to when purchasing a vehicle. According to Autolist, the state of Florida sells cars at rates that are typically 10 percent less than the average cost nationwide. This is largely due to the fact that Florida has a large population of seniors. The older population is widely known to be affluent, wealthy local, and retiree families. As they begin to drive less, there are more opportunities to find good deals on cars being sold. Additionally, as the nickname, the Sunshine State suggests, Florida is notorious for its tolerable weather year-round. Cars in Florida likely never come in contact with salt and therefore don’t present signs of salt damage when ready to sell.
On the other hand, purchasing a new car in California is significantly more expensive, earning itself the title of the worst state for initial costs. Bestplaces.net stated that California’s average cost of living is 50% higher than the rest of the United States and only continues to grow. California has a statewide tax rate of 7.25%, one of the higher tax rates in the country, as well as a prominent unemployment issue. Those who are struggling financially are more hesitant to let go of their cars, making fewer available on the market. Additionally, as the population increases, the competition to find a good deal for a new car is greater and often just a matter of luck.
What is the Best and Worst State for Unexpected Fees?
Unfortunately with car buying, the sticker-price is usually lower than what a new car will cost out the door. In some cases, unexpected fees, or doc fees (dealer documentation fees) can add an extra couple of thousand dollars to a car’s purchase price. The doc fee is truly a convenience fee paid to the dealership for handling any paperwork related to a vehicle purchase. Unexpected fees vary from state to state and even dealerships within the same state. As of 2018, Portland, Oregon had significantly cheaper doc fees than other states with an average of $127. In contrast, Alabama was sited to be the state with the most expensive doc fees, at an estimated average of $2,313. Below are the five cheapest and most expensive states based on average unexpected fees:
States with Cheapest Average Doc Fees
States with Most Expensive Average Doc Fees
Keep in mind, paying the doc fee may be valuable to you as the car dealer may handle your registration paperwork, saving you a trip to the DMV. Be sure to question what the doc fees cover.
Which States Don’t Have Sales Tax?
It’s no coincidence that most of the states with the lowest unexpected fee rates are also states that don’t have any statewide sales tax. Alaska, Delaware, Montana, New Hampshire, and Oregon are the only states in the country that don’t levy sales taxes. While saving on sales tax up-front sounds appealing, remember that there are additional fees to be considered before purchasing and owning a vehicle. Remember to factor those expenses into the total purchase price to have a fair comparison.
Tips for Buying Cars Out of State
Below are some quick tips to keep in mind when purchasing a vehicle out-of-state.
Try to see the car in-person before closing the deal.
If you’re buying the car online or cannot see it in person, try to only use companies that offer a buyer’s remorse policy. For example, Carvana gives their buyers seven days to test drive the vehicle and make sure there aren’t any issues with the car. There may be limits to the offer, so read the fine print.
If you are purchasing a used car or from a private party, ask if you can get the car inspected by a trusted mechanic to ensure it runs as advertised and to check for physical damage.
Remember that car prices fluctuate and certain models may be cheaper in other states for various reasons. Being decisive about what you’re looking for can help narrow down your options and offer opportunities for savings.
Don’t forget to factor in long-term maintenance costs and other expenses associated with owning a vehicle into your budget as well.
What is the Best State to Buy a Car?
While the best state to buy a car will vary based on any given driver’s specific needs, if you’re just considering affordability, New Hampshire is the cheapest state to buy a car. The Zebra states that the average auto insurance premium rate in New Hampshire is $1,083, 24.1% less than the national average. On a scale of 100 being the US average cost of living, New Hampshire sits just above the average at a rating of 105.4. Additionally, registration fees are about $23, $8 for the tag, and $15 for the new registration. When considering the low cost of auto insurance, the cost of living, registration fees, and the lack of car sales tax in New Hampshire, it is clear that this state offers the overall best opportunity of purchasing an affordable vehicle.
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