How you finance a vehicle is just as important to the purchasing process as the final price you negotiate. Read this article to learn what type of financing is best for you.

by JERRY EDGERTON, ForbesAutos.com

That Porsche Cayenne is calling your name, but you are not going to get carried away. If you don't get the best deal you can on financing that new car or truck, you could be wasting thousands of dollars. So be ready to negotiate hard to get the best deal on the vehicle of your choice. Before you ever set foot in a dealer's showroom, you need to know all the potential costs of that dreamy sports car or high-riding SUV.

Tips On Getting Started

• Start by figuring out your budget, taking into consideration the cost of insurance, maintenance and gasoline, which typically run higher for luxury brands. "All auto-related expenses should stay in the 10% to 15% range of total monthly living expenses," counsels Diahann W. Lassus, a CPA and certified financial planner with offices in New Jersey and Florida.

• Pick a realistic target price for your vehicle, and don't forget to add on sales tax--in the 5% to 8% range in many states. The ForbesAutos.com Loan Calculator can give you an idea of what your monthly payments would be at an average loan rate.

• Decide whether you want to purchase the vehicle with cash or take out a loan, or you may simply opt to lease. If you are considering a cash purchase, remember to calculate the earnings you would lose over the three- or four-year term of an auto loan if you went for that option instead. Look at whether you would keep that money in a bank or in a higher-rate investment, and then calculate your probable interest earnings at that rate. But with interest rates still extremely low on bank savings accounts and brokerage money market funds, the cash alternative might look more attractive than it would when those rates were higher.

• If you use your car for business more than half the time, leasing may make it simpler to take business deductions. Business owners or anyone else who uses his or her car for business can deduct the portion of the lease corresponding to percentage of use for business. This is probably simpler than ownership, but does not actually save money compared with the depreciation schedule allowed for car owners who use the vehicle for business.

A choice to lease or buy with a loan is largely one of personal preference and driving habits. If you typically trade for a new car every four years or less, drive less than 12,000 miles a year (the usual lease allowance) and keep your vehicle in good condition, you may be a good leasing candidate. Especially among luxury brands, the best deals often are the ones from the company's finance arm. Because they prefer promotional leases to giving rebates, companies such as BMW, Lexus and Mercedes-Benz often will offer leases that have low interest rates, above-market residual values or both. The result: lower monthly payments. Whether you are going to purchase with an auto loan or lease a vehicle, here are some things you need to consider.

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