There are many things you have to think about before you consider financing a car through an out-of-state dealership. Even though the process may seem straightforward, there are a lot of details with state-to-state auto sales that can get in the way, especially if you're a bad credit borrower.
Financing a Car in Another State Can Be Complicated
It's certainly possible to finance a vehicle from a different state than you live in, but you may have to put up with some complicated details regarding state-to-state commerce which could become inconvenient.
These details shouldn't cause an issue getting approved for an auto loan in a different state, nor should it stop you from driving the car back home. However, if you're not prepared for the differences between financing in your chosen state and your home state, you may end up having to pay hundreds of dollars more out of pocket when you try to register the vehicle where you live.
Why all the possible complications? Sales tax. Since each state taxes differently, you need to be aware of how these differences affect your car buying experience. Auto sales typically have their own set of tax rules in each state.
In fact, some states tax vehicles at a different rate than other products, and some states don't charge sales tax on them at all. This is why buying a car across state lines can be very different than other goods or services.
Sales Tax Differences Between States
It's important to research the issues beforehand if you plan to finance a vehicle through an out-of-state dealership. There are a few different things you have to pay close attention to:
- Differences in tax rates – It's a good idea to pay attention to this so that you know what to budget for. You're always charged the tax rate required by your home state. However, if the state where you're buying doesn't charge sales tax, or sales tax on cars, and isn't a reciprocal state, you have to pay any taxes due at your local DMV or Secretary of State when you get home.
- How trade-ins are computed – Some states that charge taxes compute how they are collected differently if there's a trade-in involved. In certain states, taxes can be charged on the value of the vehicle after the trade is deducted, rather than on the total sale amount.
- Reciprocal and non-reciprocal states – When states are reciprocal it means they have mutual agreements in place that allow dealers to collect car sales tax. In these cases, a reciprocal state dealership can finish the paperwork, collect the required taxes and fees, and then cut a check to your home state for the correct amount. States that aren't reciprocal typically don’t collect any sales tax, but require you to purchase a temporary in-transit permit that allows you to legally drive the vehicle home where you have to pay to have your car registered.
Once you know the state where you're planning to buy a vehicle, you should check reciprocity in order to avoid any unexpected out-of-pocket costs. The best course of action if the state is non-reciprocal with your home state is to find out your sales tax, title, and license fees and have them added to your loan.
Doing this allows a dealer to cut a check to you for these fees, which you can then take to your state DMV. This prevents you from coming up short and having to pay out of pocket to register your car in your home state.
Finding a Dealership to Work With
If you have bad credit, you can still finance a vehicle from a different state, but you have to be prepared for the process. Otherwise, complications could make your experience more stressful and expensive than it needs to be.
If you're not sure where to start the search for your next car, let Auto Credit Express help. We've been connecting bad credit borrowers to special finance dealerships that assist borrowers in unique credit situations for over 20 years.
The process is easy to get started, and there's never any obligation to buy. Don't hesitate any longer to start looking for the financing you need. Fill out our fast and free auto loan request form, and we'll get to work matching you with a local dealer.