Which State Is the Cheapest to Buy a Car? A 2023 Analysis of the Best Deals

Finding the cheapest state to buy a car involves looking beyond just the sticker price. While the national average for a new car reached $48,451 in 2023, your location can dramatically impact your total ownership costs. According to research from GOBankingRates, which analyzed data from Kelley Blue Book, ISeeCars, AARP, and LendingTree, three critical factors determine affordability: vehicle prices, sales tax rates, and dealership service charges. Understanding how these elements combine across different states can save you thousands of dollars on your next purchase.

The Hidden Cost Structure Behind State-Level Affordability

When comparing states for car purchases, most buyers focus solely on vehicle prices. However, this approach misses the bigger picture. Sales tax rates vary dramatically from state to state—ranging from 0% in some states to over 7.5% in others. Additionally, dealership fees can differ by thousands of dollars depending on where you complete your transaction. The most affordable states combine reasonable vehicle prices with either low or zero sales tax and minimal dealership charges.

Sales Tax Impact: Why Four States Have a Major Advantage

Four states stand out immediately: Delaware, New Hampshire, Montana, and Oregon—all charging zero sales tax on vehicle purchases. This single factor provides an enormous advantage for car buyers. For example, purchasing a $50,000 vehicle in a state with 7% sales tax costs $3,500 extra compared to these zero-tax states. New Mexico charges 7.61% sales tax (the 16th highest nationally), while North Carolina levies 7.00%, yet both still rank affordably because other factors offset this disadvantage. Alaska’s minimal 1.81% rate and Hawaii’s 4.44% rate further demonstrate geographic pricing variations.

Dealership Fees: The Overlooked Cost Factor

Perhaps more surprising than sales tax differences is the dramatic variation in dealership fees across states. Oregon leads with the second-lowest dealer fees nationwide at just $353 for both new and used cars, while Montana ranks third-lowest at $537 per transaction. Alaska achieves top-four affordability rankings despite car prices exceeding the national average by 20% because it maintains the nation’s lowest dealer fees at just $315. Conversely, Wisconsin’s relatively higher dealer fees of $2,753 for new cars still didn’t prevent it from ranking in the top eight overall—demonstrating that multiple affordable factors can compensate for higher individual costs.

The Top 10 States for Budget-Conscious Car Buyers

Based on 2023 data, the states offering the cheapest car purchases rank as follows:

1. Oregon leads the rankings with zero sales tax and the second-lowest dealer fees. New car prices averaged $51,299 while used cars averaged $28,218. Dealer fees totaled just $353 for both purchase types, making it the overall most economical option.

2. Montana combines zero sales tax with the third-lowest dealer fees ($537), achieving strong affordability despite new car prices averaging $56,186—more than 15% above the national average. Used vehicles averaged $30,906.

3. New Hampshire benefits from zero sales tax and below-average dealer fees of $1,372. New car prices averaged $45,928 (5.21% below national average) while used cars averaged $25,263—among the nation’s lowest.

4. Alaska ranks fourth despite the highest new car prices on this list ($58,377), thanks to the nation’s lowest dealer fees at just $315. Used cars averaged $32,111.

5. Delaware offers zero sales tax but carries relatively high dealer fees ($2,486). New car prices averaged $47,502 (about 2% below average) with used cars at $26,129.

6. Hawaii surprisingly features new car prices 3.58% below national average at $46,718, coupled with a moderate 4.44% sales tax. Used vehicles averaged $25,698 with $1,620 in dealer fees.

7. Virginia maintains moderate sales taxes at 5.77% with new car prices just 0.42% above average ($48,656). Used cars averaged $26,764 with dealer fees at $2,486 for new purchases and $1,971 for used.

8. Wisconsin keeps new car prices just 1.30% above average at $49,080, with moderate sales taxes offsetting higher dealer fees. Used cars averaged $26,997 with dealer fees of $2,753 for new and $2,069 for used vehicles.

9. New Mexico maintains reasonable affordability despite the 16th-highest sales tax (7.61%), as new car prices run only 4.79% above average at $50,770. Used cars averaged $27,926 with dealer fees of $1,603 for new and $1,230 for used.

10. North Carolina rounds out the list with relatively high sales taxes at 7.00% offset by low dealer fees. New car prices averaged $50,100 with used at $27,558; dealer fees totaled $1,996 for new purchases and $1,623 for used.

Calculating Your Total Purchase Cost Across States

To determine your actual savings by purchasing in a different state, add three components: the vehicle price plus sales tax plus dealer fees. For instance, a $45,000 vehicle purchase varies significantly—in Oregon it costs approximately $45,353 (no sales tax + $353 fees), while in North Carolina it would total approximately $48,350 (7% tax + $1,996 fees)—a difference of nearly $3,000 on the same vehicle.

Emerging Patterns: Why Certain States Dominate

The cheapest states to buy a car share common characteristics: they either eliminate sales tax entirely, maintain below-average vehicle pricing, or keep dealership charges minimal. Interestingly, the most affordable states don’t always have the lowest individual prices. Alaska and Montana rank highly despite above-average vehicle costs because their negligible or minimal dealer fees and zero sales tax compensate. Conversely, states with moderate sales taxes and reasonable dealer fees rank well if their vehicle prices stay close to the national average.

The research demonstrates that finding the cheapest state to buy a car requires analyzing all three cost components together rather than focusing on any single factor. Whether you’re shopping for new or used vehicles, understanding your state’s positioning within this affordability landscape can inform whether pursuing an out-of-state purchase makes financial sense for your situation.

Note: This analysis is based on 2023 market data compiled by GOBankingRates from Kelley Blue Book, ISeeCars, AARP, and LendingTree. Current market conditions may vary from the data presented.