How tax is charged on a car purchase
The rate depends on where you register the car, not where you buy it. Some areas charge no sales tax at all, and some charge different rates for vehicles above or below a price threshold.
When the tax is financed, it becomes part of the balance and attracts interest for the whole term. Paying it upfront keeps the loan smaller and the total interest lower.
Worked example
A £30,000 car at 8.25% sales tax carries £2,475 of tax, so the price including tax is £32,475. With a £3,000 deposit and the tax paid upfront, £27,000 is financed.
At 7% over 60 months the payment is £534.63, the interest is £5,077.94 and the total cost including the deposit and tax is £37,552.94. Financing the tax instead would raise the amount financed to £29,475 and the payment to £583.64.
Check your local rate
Rates change, and trade-in credits can reduce the taxable amount in some places. Use the rate on your paperwork rather than a national average, and ask the dealer to show the tax line separately.
If you are exempt, for example as a disabled buyer or a business buying certain vehicles, enter 0 and keep the exemption certificate with your records.
Inputs for the auto loan tax calculator
Vehicle price before tax
The dealer price of the car, before sales tax or VAT.
Sales tax or VAT rate
The rate where you register the car. Enter 0 if the sale is exempt.
Deposit or down payment
Cash or trade-in value paid upfront, taken off the tax-inclusive price.
Interest rate (nominal, not APR)
The yearly rate before monthly compounding, charged on the amount financed.
Term
How many months you will take to repay the loan.
How the tax is paid
Financing the tax adds it to the balance; paying upfront keeps it out of the loan.
CALCULATOR QUESTIONS
Auto loan calculator with tax questions
Is it cheaper to pay the tax upfront?
Yes, if you have the cash. Financing the tax means paying interest on it for the whole term.
Which sales tax rate applies?
The rate where the car is registered, which may differ from where you buy it. Check your local rate.
Does a trade-in reduce the tax?
In some places the trade-in value is deducted before tax is calculated. The calculator applies the rate to the full price, so adjust the price if your state works that way.
Does VAT work the same way?
The arithmetic is the same: a percentage of the price, paid upfront or financed. The rules on what is taxable differ, so check the invoice.