What is the principal on a car loan?

I've been going over my car loan agreement, and there's a phrase I don't understand. It keeps mentioning the principal. What is the principal on a car loan?

Answer
There can be a lot of confusing language related to car loans, so don’t worry—you are not alone. The principal is the total amount of money you agreed on when you took out the loan.
The principal includes:
  • The sticker price of the car
  • Taxes
  • Fees
The principal does not include the interest or fees you are charged by the lender for borrowing the money. So, every month your payments will include a bit of both. You will be paying off a portion of your principal and a portion of the interest/fees.
If your loan agreement allows for it and you are financially able, try to pay extra toward the principal each month. In the long run, it will mean paying less in interest and paying off your loan faster. But always ask beforehand, because some lenders may charge a prepayment penalty for doing so.
If your lender doesn’t allow you to pay off the principal faster, you may want to consider refinancing into a more favorable loan.
For car owners looking to save money, the Jerry app is a must-have resource for refinancing and finding a loan that matches their profile.
Skip the hassle of shopping around on your own. Jerry will connect you with top lenders in minutes, so you can compare competitive quotes all in one place quickly and easily.
Lauren Smith
Answered on Nov 19, 2021
Lauren has written for World Nomads, the Matador Network, Korvia Consulting, and once upon a time Three Fates Games. She graduated from Columbia College of Chicago with a BFA in Creative Writing. After graduating, she moved overseas and lived in South Korea where she spent her free time traveling and going on road trips with friends. She misses the rest stop potatoes and is trying to figure out how to recreate them at home. She's now based outside of Chicago and when she's not writing she spends her free time reading, playing video games, and exploring whenever she can.
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