Is a new car in your future? If so, you have probably done your homework and researched the different types of vehicles, the options available and the best pricing deals. You are now ready to buy! Or are you ready to lease? Maybe lease with an option to buy? With all of the financing options available today, a little research about how you will pay for the vehicle is needed before driving your new set of wheels off of the car lot.

What's the Difference?
So what exactly is the difference between leasing and buying? "When you lease a car, you're paying only for the difference between the purchase price and its projected resale value at the end of the lease," says Tracy Darchini, corporate communications specialist for Mercedes-Benz USA. "When you buy it in the traditional sense, you are financing the entire price."

To help understand the difference between buying a car and leasing it, Darchini gives the following example: "You want to buy a $30,000 car which will be worth $20,000 after three years," she says. "You can lease it for three years by making $10,000 worth of payments or $278 per month. If you bought it the usual way with a three-year loan of $30,000, your monthly payments would be $833."

Darchini acknowledges that this is an over-simplified example, and there are usually additional fees, restrictions and down payments involved with leasing.

To Lease or Not to Lease
After seeing the payment difference between leasing and buying, you may be jumping at the chance to become a lessee. Additionally, you will not have to worry about major maintenance expenses, since vehicles are usually under warranty throughout the term of the lease.

"It's nice to be able to drive a new car every three years," says Arvel Rotan of Waco, Texas, who is leasing his third car. "Leasing allows me to drive the newest model of car and keep my payments in line with our family's budget."

Rotan also feels comfortable knowing his car's value is "locked in" with a lease. "The residual value of the vehicle at the end of the lease is usually more than the actual value of the car," says Rotan. Plus, he doesn't have to hassle with selling the car or negotiating a trade-in value.

Of course with the good, comes the bad. The downside of leasing is that you will not own the car (unless you opt to purchase it at the end of the contract), and you will continue to have car payments. Also, if you tend to put a lot of miles on your car or excessive wear and tear (think three kids or a large dog!), you may be paying extra fees when the lease is over.

Bye-Bye Buy?
Since leasing offers significantly lower monthly payments, will buying a car with traditional financing be a thing of the past? Probably not. Though the difference in payments is enticing, there are plenty of reasons why buying may be a better option for you and your family.

Maybe the most important advantage of buying a car is eventually you will own it outright, and there will be no more car payments. Charlie Vogelheim, executive editor of Kelley Blue Book, says that with numerous rebates and low interest rates, cars are now more affordable than ever.

If you have a preteen or teenager, your child will soon be rubbing his fingers together, signaling he is ready for a set of car keys. What better vehicle to give him than the one you have meticulously maintained? "Teenagers are driving their parents 'hand-me-down' minivans," says Vogelheim. Not to mention, giving your vehicle to your child is a good excuse for YOU to upgrade.

Of course, one thing that you are stuck with when purchasing the car is the car. What if the manufacturer comes out with a stylish new model soon after you purchase your car? What if the vehicle falls apart as soon as the warranty expires? You can always sell the vehicle or pay for the maintenance, but these are good questions to consider when choosing your financing option.

Balloon Payments
There are other options besides the traditional leasing and buying. Do you want both low monthly payments and ownership of your vehicle? Then financing with a balloon payment may be the answer for you.

This option allows you to finance a portion of the purchase price, leaving a large payoff – the balloon payment – at the end of the note. Similar to a lease, the trade-off for having low monthly payments is additional fees and mileage restrictions.

Balloon payment financing may be especially attractive if you are anticipating a lump sum in the next few years, such as a maturing CD or company bonus. When financing through the car manufacturer, you may also have the option of returning the car at the end of the loan and driving away with a new vehicle.

Gap Insurance
Gap insurance is another term to know before purchasing your new car. "Gap insurance pays the difference between the value of your vehicle and the outstanding balance at the financing company," says Vogelheim, referring to instances when a car is stolen or wrecked.

My husband and I learned about gap coverage the hard way. We financed our car with a "final balloon payment" option, intending to trade the car for a new vehicle in three years. However, my husband was in an accident and the car was destroyed. Our insurance company paid off the fair market value of the car, but there was still a significant outstanding balance on the loan. We were left with no car, no trade-in and a hefty bill for a vehicle that was now just a heap of metal.

Most leases have gap coverage built into the contract, and you can buy it separately for other types of financing. Be aware that this type of insurance is available, and it is worth consideration.

So which financing option is best for you? If you are trying to reduce your monthly expenses or drive the newest model of car, leasing or non-traditional financing might be best. If you plan to keep the car for three or four years, buying might be a better option. Just know that there are several choices available, and you can find the one that best fits your family's needs.