Considering that Automobile Debt Loans make up a significant portion of consumer debt in America, it is important to carefully evaluate all available options when it comes to paying for your new vehicle.

Paying Cash For An Automobile - Cash, Lease, or Finance it?
If you have set aside cash needed for your new vehicle and can afford to pay for it in cash, there is no better option. Most auto purchases are traditionally financed or leased though.

Financing An Automobile
Most new automobile sales involve some form of bank financing or dealer financing. It is not surprising, therefore, that the commissions that auto dealers get by helping their customers with all their auto financing needs is often greater than the profits they make on the actual sale of a vehicle in itself. When it comes to deciding the "term or the length" of automobile financing, it is important to remember that all automobiles depreciate in value over time. Most new vehicles lose a substantial amount of their value (between 30% to 60%) within the first four to five years. Therefore, the residual value of your new car (or truck, SUV, or your family van) after first four to five years is quite likely to be considerably less than the amount you may still owe on your automobile loan. This is often referred to as being in "upside down" state of your auto loan. It is better to either refinance your auto loan, to pay up the loan in full (assuming there are no early payment penalties), or to get rid of that vehicle before your auto has depreciated all the way into a "upside down" phase. In order to avoid being in such situation, it is best to buy a car that is well within your financial means, make as big a down payment as you possibly can make, and pay up your loan at an accelerated pace if you can. If you start with the right (i.e. not overly expensive) car that is well within your financial means, achieving this is a lot easier than most would think.

Leasing An Automobile
Leasing has become popular during the recent years primarily because it is a creative way of financing an auto. It allows one to drive a more expensive or a late model auto for a seemingly low monthly lease payments than what would have been possible had the vehicle been purchased through traditional financing. Leasing is a form of auto financing that buys you use of a car for a duration. At the end of a vehicle lease, the leasee returns the car to the leasor or optionally exercises his option to buy the car from the leasor for a predetermined price. For all practical purposes, leasing a car is kind of an automobile rental agreement that span over a relatively longer rental term. Most leasing terms (lease amount and the duration of lease) are crafted such that at the end of the lease, the total amount that a leasee has paid to the leasor is more than enough to not only cover the depreciation of the auto, but also bank financing charges incurred by the leasor, various fees, as well as his profits. In other words, when you lease a vehicle, your lease payment will more than cover the actual amount of the car's value that you may consume during the term of your lease. So whether you pay for your vehicle in cash, you finance it, or lease it, it all boils down to your total cost of automobile ownership for the time you would have ownership or use of that vehicle.