Quote:
Originally Posted by Steve Carlton
She's going to be more and more upside down each time she does that unless she puts a lot of money down. Assuming she pays sales tax every time she does this, she should lease instead since you only pay tax on the monthly payments instead of the whole enchilada. I'm assuming she lives in a state that doesn't require all the tax up-front. I've heard of NY doing that.
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Most states calculate sales tax on the trade difference. So if she buys a $20K car and trades a $18K car, she pays sales tax on $2K. California is pay, and pay... no credit for the tax already paid.
You're correct on leases, most (but not all) states calculate sales tax on the payment amount and collect each month. So if you have a $200 payment and the tax rate is 6%, you send in $212 each month. If you have a 36 month lease you pay $432 in sales tax over time at 0% interest. One of the good deals in leasing.