When it comes to buying a car, one of the most important financial decisions you’ll make is how to pay for it. For many Canadians, taking out a car loan in Canada is the most practical solution. But before signing any agreement, it’s essential to understand two critical terms in car financing: loan principal and interest. These two elements determine how much you’ll ultimately pay for your vehicle and how affordable your car loan payments will be. In this guide, we’ll break down what a car loan is, the role of loan principal and interest, and how you can make smart choices to secure the lowest car loan interest rate available.