After you spend your time picking out the right make, model, color and add-ons for your new car you can start spending time on perhaps the more important factor of the transaction – how to pay for it. In this credit-happy society, most people want to rush into buying a car without having the money set aside to pay for it so they end up taking out a big fat auto loan. But that could be the wrong choice. There are a lot of advantages to being able to pay for a new car in cash. Sure, it’s probably not as immediately rewarding because you’re actually forced to save for it before you buy it but the ability to do that could end saving you a lot of money. The interest involved in taking out a car loan could add thousands of dollars to your final price tag. If you take out a $25,000 5-year auto loan at 4%, the total cost of the car then rises to $27,625 once you take the interest costs into account. A difference of $2,600 may not seem like a lot when you’re spending that much on a car but that ends up being a significant chunk of change. Plus, you could end up getting a better deal on the car if you’re able to pay for it in cash. With the economy the way it is a lot of auto dealers are nervous about extending credit because they know that many customers could very well default on the auto loan. Getting the full price tag in cash up front eliminates any credit risk that be assumed and some dealers are willing to cut you a better deal if they know that they’ll get the full price of the car up front. In almost every case, where reasonable, it makes more sense to pay in cash. You save yourself the extra cost of debt and you don’t have to worry about continuing to pay for a depreciating asset. It takes some discipline to save that money but it can pay off with thousands of dollars saved in the long run.