Cheapest States to Buy a Car: Where Your Money Goes Furthest

When shopping for a vehicle, most buyers focus on the car itself—comparing models, features, and financing options. What many don’t realize is that your state of residence can dramatically affect your total cost. A $48,000 car could cost you thousands more in one state versus another, depending on sales taxes and dealer fees. To find where you can get the best deals, researchers at GOBankingRates analyzed data from Kelley Blue Book, ISeeCars, AARP, and LendingTree, comparing new and used car prices, sales tax rates, and dealer fees across all 50 states.

The No Sales Tax Advantage

Three states have figured out the ultimate way to reduce car purchase costs: eliminating sales tax entirely on vehicle transactions. This creates an immediate savings opportunity that no other factor can match.

Oregon leads the nation in overall affordability for car buyers, thanks to its zero sales tax policy combined with the second-lowest dealer fees in the country at just $353. The average new car in Oregon costs around $51,299, and used cars average $28,218, but the combination of zero tax and minimal fees makes it the cheapest state to buy a car overall.

Montana follows closely behind, offering zero sales tax along with the third-lowest dealer fees ($537). While car prices run 15% above the national average at $56,186 for new vehicles, the tax and fee advantages more than compensate for the higher sticker prices.

New Hampshire combines zero sales tax with dealer fees under $1,400, while maintaining car prices that run 5% below the national average. This triple advantage—no tax, low fees, and affordable prices—makes it one of the most attractive options for budget-conscious buyers.

Delaware also charges no sales tax, but with dealer fees around $2,486, it ranks slightly lower than the other tax-free states. However, new car prices averaging $47,502 and used cars at $26,129 still provide reasonable options for shoppers looking to maximize savings.

Strategic Tax Rates and Moderate Pricing

Beyond the tax-free champions, several states manage low overall costs through a combination of modest sales taxes and reasonable pricing structures.

Virginia stands out in this category with a moderate 5.77% sales tax and new car prices just 0.42% above the national average. Dealer fees are comfortably below average, creating a balanced approach to affordability. Used cars average $26,764, making this a solid option for second-hand buyers.

Wisconsin offers a relatively low 5.43% sales tax, though dealer fees are the highest among the top-ranked states. However, with new car prices only 1.30% above average and used cars at $26,997, the overall package remains competitive.

Hawaii, somewhat surprisingly, provides prices 3.58% below the national average despite its remote location. Combined with a 4.44% sales tax and modest dealer fees, it secures a spot among the cheaper states for both new and used purchases.

Maximizing Affordability Through Low Dealer Fees

Some states don’t offer tax advantages but compensate with exceptionally low dealer fees that keep total costs down.

Alaska presents a curious case: car prices run more than 20% above the national average, yet the state ranks in the top four for overall affordability. The reason? Alaska has the lowest dealer fees in the entire nation at just $315 for both new and used vehicles. This dramatic fee advantage essentially offsets the higher sticker prices, making it an attractive option despite the elevated base costs.

Moderate Options Worth Considering

North Carolina demonstrates that even with relatively high sales taxes at 7.00%, other factors can make a state affordable. Low dealer fees of $1,996 for new cars and $1,623 for used vehicles, combined with prices just 3.4% above average, result in reasonable overall costs.

New Mexico, though charging the 16th-highest sales tax at 7.61%, keeps costs down through prices only 4.79% above average and dealer fees under $1,600 for new cars and $1,230 for used vehicles.

What Determines Your Cheapest Option

The data reveals that the cheapest state to buy a car depends on which cost factors matter most to you. If you’re buying new and want the absolute lowest total cost, the zero-tax states dominate. For used car shoppers, states with lower average prices for used vehicles become more attractive. Some buyers may benefit most from low dealer fees, while others prioritize sales tax savings.

The difference can be substantial. A buyer purchasing a $48,000 new car faces dramatically different total costs depending on state. In Oregon, with zero sales tax and $353 in dealer fees, the total fees and taxes might run around $350-400. In a high-tax, high-fee state, the same car could incur $6,000-8,000 in combined taxes and fees. That’s a potential savings of $5,600-7,600 simply by choosing the right state.

Making Your Decision

When planning a major car purchase, consider not just the advertised price but the full cost structure of your state. Compare the sales tax rate with dealer fees in your area against the cheapest state options. If you live near a border and the savings are substantial, purchasing across state lines might be worth the drive. For those relocating or with flexibility, choosing a state with favorable car-buying policies could put thousands back in your pocket. Use resources like Kelley Blue Book to check regional prices and cross-reference tax rates with your state’s revenue department to understand your true out-of-pocket costs before visiting a dealership.

Data source: Analysis based on August 2023 pricing information from Kelley Blue Book, ISeeCars, AARP, and LendingTree. Current prices may vary.