When the salesperson asks you that question, don’t look too confused. Your answer could one of three things:

• “I want to buy the car.”
  

• “I want to lease the car.”
  

• “I will be paying cash for the car.”
  

The last one is pretty much understandable. But what is the difference between buying a car and leasing a car? Here’s what:

First, let’s start with car buying. When you decide to buy the car and you want the dealership to help you finance it, the salesperson will ask you to fill out a credit application. Whether or not the application will be approved depends entirely on your credit score. Whether or not you apply for that particular car loan program depends entirely on you. If the interest rate is too high, then get out and look for other independent auto financing options out there and only get back to the dealership when you have your approved application. After that, the car is yours.

With leasing, the case is a little different. You will still be asked to fill a credit application when you decide to lease the car and that will still depend on your credit score. After getting a hold of your credit application and the length of the auto lease you want, the dealer will shop around for a lease for you.

You will have to choose how long you want your lease to be and how much you’re willing to pay upfront. The obvious choice, of course, would be to pay as little as possible, but be sure to weigh other options as well. After that, the car is yours for the period stipulated in the lease contract.

There are several other different strategies that car buyers like you can adopt in order to make the most out of your money and reduce costs at the dealership. Understanding the credit process is just one way of being a smart buyer.