There's more than one way to pay for a car. Know your options, and you'll have more power on the dealership lot—and more control over your personal finances.

Cash
Plunking down a stack of bills is the cheapest way to buy a car. And perhaps the most thrilling. But it’s seldom the best use of your money. Put the same amount of cash toward your home mortgage, and pay off years of interest. Or invest the cash wisely in mutual funds, and watch your account balances grow. While a car sits in your driveway depreciating, these investments work to make you wealthier.

The Bank
For a great interest rate, a local bank may be your best bet. Because bank rates are linked to the prime rate, they often offer the best available interest rate, especially when rates are declining. Also, a long-term relationship with a local bank can be useful if you ever get in over your head or if you’ve got small blips in your credit history. Read more in our Auto Loans section.

The Credit Union
When the prime rate is going up, be sure to check out the loan options at local credit unions. Because most credit union rates are tied to bonds, not the prime rate, they escalate at a slower pace. And if you’ve got less-than-stellar credit, these loans may offer you more flexible terms. Just be aware of the "Right of Offset" clause in these loans, which allows the credit union to seize your deposited funds if you default on your loan.

The Dealer
Dealers usually have several financing sources, including reduced-rate manufacturer loans. You may have to consent to a shorter term or make a bigger down payment, but these loans can save you thousands if you qualify. Dealers also offer easy, one-stop financing through local banks. Because of their relationship and volume of business with these banks, they qualify for the best rates, and they can advocate for customers with marginal credit. Just make sure they’re passing the great rates on to you, and that you’re not paying too much for the convenience.

A Lease
Do you typically own a car for less than four years? Do you like to keep a warranty? Do you drive less than 15,000 miles per year? If you answered yes to these questions, leasing may be the right move for you. When you lease a car, your payments are almost always lower than conventional financing. And if you use the car for business, part of your lease may also qualify as a tax deduction. Learn more in our Leasing Center.

Your Home Equity
Some of the interest on a home equity loan is tax-deductible, which makes this a tempting option for buying a car. But there are some very real risks involved. By applying a depreciating asset to your home mortgage, you’ll pay interest for the entire life of the mortgage on a car that you’ll probably only keep for five years. You’ll also significantly decrease the amount of home equity you have available for home repairs, major life changes, and emergencies.

Your Investment Equity
You may be able to borrow against a retirement fund, life insurance policy, or another appreciating investment to purchase your car. Just remember that you’re decreasing or losing your ability to tap those funds in the event of an emergency.