Let's be brutally honest: The very best way to pay for a car is with cash up front. Plain and simple, it keeps you out of debt. And if you can live with a used car, it's far more affordable.

We realize, however, that not everyone is in a position to plunk down a wad of cash for their next car. If you really need a big loan, it may be one more reason to consider leasing instead of buying. You won't have to make a large down payment–so you can put the money that would have gone into a down payment into real investments that will appreciate instead of depreciate. (For more information on leasing, see Leasing 101.)

Here's a tip: Sometimes banks offer an almost no-interest (or in this case, lease-rate) loan on a lease if all the payments are made up front. Our friend Kurt Weiss told us a story about how his own stepfather, who had always been a devout payer of cash for everything, got a better deal by leasing this way.

"He was buying my mom a $20,000 vehicle that happened to have a 50% residual value on a two-year lease," Kurt said. "The bank was offering 1.5% if the lease was paid up front."

The choice, then, was a simple one. He could give the dealer $10,300 right away and keep his other $10,000 for the next two years. Or he could pay a dealer $20,000 to buy the car. Figuring he could make more than that $300 by investing the extra $10,000 for two years, he leased for the first time!

But if you decide to buy and use a loan, don't just accept dealer financing. Check out terms from many different sources. At the very least, if you know a bank, a credit union, or an online lender is ready to give you a lower rate than the dealer, you might be able to talk the dealer into meeting the same terms–or offering you some special incentive such as zero money down or no payments for a year.

Be sure to check online sources for loans as well. Here are a few good sites to start with that have the Dolan seal of approval: www.eloan.com and www.lendingtree.com.

Warning!

Don't get overly excited by the prospect of "0% financing" ads that spring up when some auto manufacturers need to move unsold new car inventory.

The ad may draw you into the new car showroom (that's the idea, right?), but only those applicants with the best credit ratings (we estimate far less than 25% of applicants) will likely get those loans, or you may find that if you qualify, the loans may be of such a short duration that you can't afford the monthly payments.

And here's the kicker: Don't be so excited by the rate that you forget to negotiate a favorable price for the car. Negotiate hard first . . . then talk financing! In some cases, you may be better off taking a rebate rather than low-interest financing.

To help you determine which is better for you, click here to use our handy calculator.