1. What is Effective Principal?

The effective principal is the actual amount being financed in a car loan after accounting for all costs, down payment, trade-in value, and any amount still owed on the trade-in vehicle.

2. How Does the Calculator Work?

The calculator uses the following formula:

Where:

• \( price \) — Purchase price of the new vehicle
• \( tax \) — Sales tax on the purchase
• \( fees \) — Additional fees (title, registration, etc.)
• \( D \) — Down payment amount
• \( trade\_value \) — Value of your trade-in vehicle
• \( owed\_on\_trade \) — Amount still owed on the trade-in

Explanation: This calculation shows the true amount being financed, which affects your monthly payments and total loan cost.

3. Importance of Accurate Calculation

Details: Knowing the effective principal helps you understand the true cost of your vehicle purchase and compare financing options accurately.

4. Using the Calculator

Tips: Enter all amounts in dollars. Be sure to include all fees and taxes, and verify the trade-in value with your dealer.

5. Frequently Asked Questions (FAQ)

Q1: Why is the amount owed on trade added back?
A: If you owe money on your trade-in, that debt becomes part of your new loan unless you pay it separately.

Q2: Should I include extended warranties in the price?
A: Yes, include any add-ons you're financing in the vehicle price or fees.

Q3: How does this affect my monthly payment?
A: The effective principal is the amount your monthly payment is based on (along with interest rate and term).

Q4: What if I have negative equity in my trade-in?
A: Negative equity (when owed_on_trade > trade_value) increases your effective principal.

Q5: Does this include the interest charges?
A: No, this calculates only the principal amount before interest is applied.