What is the principal of a car loan?

I saved up to make a down payment for a vehicle and now I’m shopping around for the best car loan rate. However, it’s my first time getting a loan and I’m not sure what all the terminology means. I keep seeing the word principal. What is the principal of a car loan?

Answer
Congratulations on saving up enough to make a great down payment on your vehicle! Understanding car loan terms can seem overwhelming, but it’s easier than you might think. To answer your question, the principal on a car loan is the total amount that you’re borrowing, including taxes, fees, and the price of the vehicle.
When you finance a car, you’re going to have to pay:
  • The price of the vehicle
  • Sales and local taxes
  • Fees charged by the dealership
All of these combine to become the principal. For example, let’s say you received an invoice for the following:
  • Price of the car after your down payment: $22,500
  • Fees: $575
  • Taxes: $2,100
Your principal is $25,175, or $22,500 + $575 + $2,100. Your monthly car note would then reflect this with interest added in. By the time you reach your final payment, you’ve paid off the entire principal and you own the car outright.
Since this is the first time you’ve financed a car, you also need to budget for maintenance, gas, and car insurance. While you can conduct routine maintenance on your car and limit your gas usage, only shopping around will cut your car insurance bill.
That’s when the Jerry app can help you save money. As a licensed broker, Jerry can help you find and compare quotes from over 50 top providers in minutes. When you find a better rate, Jerry can help you buy your new coverage and even cancel your old policy!
Eric Schad
Answered on Nov 25, 2021
Eric Schad has been a freelance writer for nearly a decade, as well as an SEO specialist and editor for the past five years. Before getting behind the keyboard, he worked in the finance and music industries (the perfect combo). With a wide array of professional and personal experiences, he’s developed a knack for tone and branding across many different verticals. Away from the computer, Schad is a blues guitar shredder, crazed sports fan, and always down for a spontaneous trip anywhere around the globe.
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