Once you have selected a vehicle to purchase, you need to decide whether to lease, obtain a loan or pay cash. There are pros and cons for all three methods. You need to be able to make an informed choice about what is best for you based on the operating costs, equity, and ownership, and tax and insurance considerations.

Paying in Cash - Less than 11% of all vehicle purchases are in cash. Paying in cash for the entire cost of your automobile means that it is all yours and you do not owe anyone anything. However paying in cash is not an option for many and even if it is an option, you will not have that money available for emergency or for investing.

Equity and Ownership - When you lease, at the end of the lease, you have no equity or ownership of the vehicle. When you finance your vehicle with a loan, you are gradually building equity as you pay it off. However, you should consider the amount of money that you will have to spend over the total period of the loan in order to build equity. Even though you will "own" the vehicle after making all the loan payments, in all likelihood the value of the car will be much less than the amount that was spent in order to obtain it. And even though the vehicle is an asset, it is a continually depreciating one, losing more and more of its value with each passing day.

Other Differences - Because of the way leases are structured, the payments can be lower than loan payments. That way you can generally add more options or upgrade to a more expensive model than you could afford with a loan. Also consider how often you want to drive a new vehicle. Leases can have shorter terms than loan, so you can drive a new vehicle every two or three years.