You have found your dream; now you need to figure out the right way to pay for it. Most people finance their cars, some people lease and a few pay with cash. Each method has its own advantages and disadvantages, but choosing the right way to pay for your car depends on the type of the car you're buying. You also have to be clear about how long you plan to own it, how much cash you have and your credit score.

Cash Payment:

A Cash down payment excludes your interest costs and finance fees, which can add thousands of dollars to a car's actual price. When you purchase a car with cash, you can do whatever you want with your car as long as you'd like. Paying cash also makes it easier to sell your car, because you own the car outright. When you get a car loan, the bank holds the title, which can complicate the process of selling. A down payment also means you won't have to make monthly car payments, which takes pressure it off your monthly budget. The disadvantage of this is, if you pay cash, you may take a big bite out of your savings and, if a rainy day comes along, you could wind up in a financial crisis. Also remember that you are using your hard-earned cash on an asset that loses its value as time flies.

Financing:

Most of the Americans choose to pay for their car through financing or making monthly payments for a fixed number of months. Leasing and financing are available through credit unions, automakers, banks, and financial companies.

The upside of financing a car is that you're using someone else's money to pay for it.There are also zero-percent loan deals, typically from automakers and their financing arms, that can make financing almost the same as paying with cash, but the payments are just spread out over a fixed time period.

The availability of loans depends on your credit rating: The higher your score, the higher your chances of getting the best financing terms from a lender. If you have a low score, you may find it hard to get a loan on terms that you find acceptable.

If you want to buy a new car before you clear the old payment, your options may be limited. Check with potential lenders to see what's attainable before you search for a new car.

Once your financing is approved, you should realize that you actually won’t own the car outright until you finish making the payments. If you want to sell your car while someone else still owns the title, the process would be difficult and will require your lender's involvement.

Financing typically takes more per month out of your budget. Many lenders are offering longer loan periods as a way to bring monthly payments down; the average new-car loan now exceeds 60 months.

Keywords: Car Loans Versus Car Finance