Home > Auto Loans > Car Shopping? The Most Important Choice You’ll Make

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For many of us, buying a car is one of the biggest purchases we make. While it might only take a couple minutes of browsing the Internet to find the one that’s right for you, figuring out the best way to pay for it isn’t always as easy. Whether you decide to lease, finance or pay for the car in cash, each method of payment comes with its own set of pros and cons. Here’s a breakdown of some of the most popular car purchasing options and why they may, or may not, be right for you.


Leases essentially award you temporary ownership of a vehicle. You’ll be required to make monthly payments over a specific period of time and once the lease expires you’ll have to return your car to the dealership. This might be the ideal payment plan for someone who’s looking to change cars on a relatively frequent basis or wants to the most affordable option. Because leases are designed to only cover a portion of a car’s total cost, they tend to be less expensive than financing or purchasing the car outright. Leases also come under warranty, so you’d be saving on costly mechanical repairs as well.

Leases aren’t without downsides. Leasing a car typically requires a driver to carry a more comprehensive, and thus more expensive, insurance policy. Additionally, leases come with a yearly mileage limit of somewhere between 10,000 and 15,000 miles. If you go over this limit, you may be forced to pay a hefty penalty fee. You may also be charged for any damage, including nicks and dents, to the car! The biggest thing to keep in mind however is the fact that your ownership of the car is only for a limited time. This means you’ll have to go through the process of a leasing a new car every couple of years.


Financing is similar to leasing in that you’re tasked with making payments for a set number of months, but instead of handing it over to the dealership at the end, you get to keep it. Not having to immediately jump into another payment plan should free up some cash flow and could save you a solid chunk of change in the long run. However, financing a car can come with its own set of considerations.

First and foremost is the cost of upkeep. While many dealers offer comprehensive warranty plans, it will be an added expense tacked on to your monthly payment. Cars also typically depreciate in value rather quickly, so while you might eventually own the car, the chances of it retaining the value it had when you bought it at are rather slim. Finally, most financing options require you to make a significant down payment. So if you don’t have a good deal of cash to work with at the start, you could find yourself with a higher monthly loan payment.


Buying a car outright is a great way to minimize costs. Paying in cash means you’ll get to bypass the expense of interest and financing fees, which could wind up saving you thousands of dollars. You’ll also be able to avoid the responsibility of making monthly payments, keeping cash flow freed up from the start.

However, paying for a car with cash is far from easy. Saving up the thousands of dollars it would require to purchase a new car will most likely require more time than most of us are willing to sacrifice. You’d also be losing out on the opportunity to build positive credit while managing a car loan. Demonstrating you can make timely payments on a long-term loan is a great way to build credit history and boost your credit score. (You can see how your credit scores are affected by your loans by getting your free credit scores, updated every 14 days, on Credit.com.)

Lastly, as I mentioned earlier, while a car may be a necessity for many, they aren’t the soundest investment. Consider whether the substantial amount of money (or at least some of it) you’d be putting towards a car could be better off in an IRA or other long-term investment account.

While there isn’t one definitive answer on how you should pay for your car, there is certainly a right answer for your particular situation. Before taking a drive to the dealership, consider these options and take time to reflect upon the pros and cons of each one. Which one best suits your budget and cash flow situation? Do one of these options fit in better with your future financial goals? Knowing the answers to questions like these can help you make sure you’re picking the best option for you and preserve your financial wellbeing.

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