Financing through a bank or a dealer is the way most people pay for new cars, but it's not the only way. Some folks have access to the "Bank of Mom and Dad," a hallowed institution that often hands out interest-free loans with generous loan forgiveness. If that's not on the table, conventional borrowing may be the most advantageous in the long run.

Here we examine some other ways to pay for a car.

Paying Cash

It's long been an article of faith that paying cash is the cheapest way to finance a car. Write a check once and you do away with the burden of monthly payments forever. The only downside of pulling money out of your personal till is that you're giving up the interest or dividends it would have earned.

In the current low-interest-rate environment for borrowers, it could be a game-changer. For people with good credit, borrowed money is cheap right now. They can get bank loans for less than 3 percent, and car-company-subsidized loans are sometimes 0 percent. If you're contemplating taking money out of an investment that pays you, say, a reliable 5 percent, then you're better off borrowing the cheap money.

As always, weigh the total cost of the loan—all of the payments, including taxes and fees—vs. what your capital would be worth if you left it alone. In the case of a subsidized low-interest loan, you'll want to be careful that the cheap financing doesn't mean you must pay the sticker price or forgo a rebate in order to qualify. In the end, you may find that you're better off with the rebate and hard bargaining than you are with the "free" financing.

You may also find that the opportunity cost is minimal compared with the aggravation of monthly payments.

Home Equity

Mortgage lenders have been willing to make additional loans secured by the equity in a home, either as a single sum, a home equity loan, or a home equity line of credit (HELOC), essentially an open-ended line of credit that you can draw on when you want to, like a credit card.

There are benefits using the equity in your home as collateral for some other type of spending: the possibility of lower interest rates and the fact that the interest portion may be tax-deductible. The tax benefit counts only if you itemize deductions. And for what it's worth, the deduction is capped at $100,000.

But there are downsides, too. HELOCs are unpredictable because they may have variable rates that can leave you paying more than you anticipated. But the biggest danger with either option is the risk to your home. With a conventional auto loan, the vehicle itself is the collateral. But with either a home equity loan or HELOC, the collateral is your home. If something happens and you can't make the payments, your home could be in jeopardy. That's a big risk to take for an auto loan.

In addition, you may find that you don't qualify or that the hurdles are higher than you'd think. Lending standards are a little looser now, but lenders may still be pickier about who can get a loan than they used to be.

401(k) Loans

It's possible to borrow money from your 401(k), but check with your plan administrator to see whether using it for a nonessential item like a new car is allowed.

There are significant negatives to this. The first is opportunity cost—the lost earnings on the capital you withdraw. The repayment, generally limited to five years or less, comes straight out of your paycheck, which may tempt you to reduce your regular 401(k) contribution. That's another long-term opportunity cost. If you lose your job or change plans, you may have to repay the balance in full within 60 days.

Then, if you don't repay the loan at all, you face taxes and early withdrawal penalties. That could put a big dent in your nest egg by the time you retire.

To weigh the benefits and consequences for yourself, use the Bankrate.com calculator called "Should I borrow from my 401(k) plan?" Using common assumptions, lending yourself money to help buy a car when you're 35 may not hurt very much. But withdrawing money and not paying it back could put a huge dent in your future nest egg.

Credit Cards

You also can purchase a car, at least in part, by using a credit card draft or cash advance, which works like a personal check. You may have received a draft offer from your credit card company in the mail, with a letter encouraging you to pay off other credit balances or make some other large purchase with them.

With low introductory rates and cash-advance fee waivers, it may be tempting to use one to buy a car or to at least come up with a down payment. It's not a good idea. Like a HELOC, this is a revolving line of credit that gives you flexibility in your monthly payments. But card interest rates can climb significantly once the attractive introductory rate expires. Read the fine print. The introductory interest rate on your outstanding balance could suddenly pop up a lot. If you're a day late on a single payment, it could rise higher still. A loan like that is possibly the worst way to finance a car.