Why does my credit union want to charge me sales tax for a used car loan?

Question

I applied to my credit union for a used auto loan and was approved. They then told me I had to pay sales tax on the car for the loan amount which makes no sense to me since this transaction is between two people and doesnt involve the bank anymore than that they are financing my loan and no dealership is involved to pay a sales tax. Does this make sense to anyone or is this normal for bank to make you pay sales tax on an auto loan? My friend who I'm buying the car from is being required to come to the bank with me sign some paperwork as well. None of this makes sense.

I live in the state of California

Answer 1

You may be confused. Your state probably requires the collection of sales tax on the sale of a vehicle, and you will likely have to provide proof of the payment tax in order to register the vehicle once you purchase it. Otherwise, I don't understand the Credit Union's involvement.

Answer 2

1

Answer 3

Something sounds fishy here. The credit union shouldn't charge you sales tax for a loan. You aren't buying anything from them. I don't know what state you live in, but in my state, if the car has been already sold and registered in the state, then when you buy it, you are not required to pay the tax again. I know all states are different, and you may have to pay the tax when you register it at the DMV and the credit union will have a lien on the title, but that shouldn't have anything to do with the tax.

Make sure you understand everything, before you sign the papers. Read the fine print and don't be embarrassed about taking the time to read the stuff. You are signing the contract, so know what you are signing.

Answer 4

Taxes are a very funny thing sometimes. We all complain about having to pay them but as a general rule of thumb, if you pay income taxes, it probably means that you made money and that is not a bad thing. Likewise, paying taxes when you buy a new car, at least in some states, could indicate that you made more money on your old car by selling it yourself!

Here is how it works if you sell your old car:

Step 1: You sell your old car and get more than you would at the dealer’s for trade in.

Step 2: You buy a newer/better car from a dealer or a private seller.

Step 3: You register your car and pay sales tax on that purchase in every state except Alaska, Delaware, Montana, New Hampshire, and Oregon.


Here is how it works if you do a trade in:

Step 1: You trade you old car into a dealer and get less than you would if you had sold it yourself.

Step 2: You pick out your newer and/or better car at the dealership.

Step 3: You pay the registration to the dealer and in every state except California, the District of Columbia, Hawaii, Maryland and Michigan, you will get a deduction for the sales tax on the purchase but you will be taxed on the title transfer fees that the dealer charges you.


So, in every state except California, the District of Columbia, Hawaii, Maryland and Michigan if you sell your car yourself and then buy a car, you will pay sales tax but you actually got a lot more for your car that you sold! Does it balance out? Yep- it actually still means that you are putting money in your pocket to go towards that next purchase.

Making money after taxes is what it is all about!

Answer 5

Sales tax would be charged, but it would be paid to the state, unless in Cali the bank pays it to the state. They probablty want to see that your friend signs off on the title and make sure they get their lien on it.

Answer 6

Your not paying actual tax on the car you are paying the usage tax which MUST be paid when purchasing ANY vehicle.

Answer 7

um you have to pay sales tax on everything... yes it makes total sense, because when you go to register the car you are required to pay tax.

Answer 8

ITS BEST IF YOU CONTACT YOUR LOCAL (DMV) DEPARTMENT OF MOTOR VEHICLES OFFICE, THEY WILL BE ABLE TO ANSWER ANY AND ALL OF YOUR QUESTIONS AND AT THE SAME TIME YOU WILL BE GETTING THE CORRECT ANSWER TO YOUR QUESTION.

California Department of Motor Vehicles
Driver Licensing &Title/Registration: [phone]

Answer 9

The State reguires it. NOt the bank...In CT it is 6%.

Answer 10

Because the can and we put up with it.