How Does a Radiator Cap Work?

The radiator cap is the gatekeeper of the cooling system. The cooling system uses pressurized coolant (also known as antifreeze) to take accumulated heat away from the engine. Having a functional radiator cap is critical to this process, as it maintains the proper amount of pressure. 
Each radiator cap is rated for a certain amount of pressure it can hold (e.g. 0.9 bar, 13 PSI, etc). Different cooling systems call for different pressures. It is important to buy a radiator cap that matches the factory specification.
Pressurizing the cooling system is necessary to increase the boiling point of the coolant. This enables the liquid to hold more heat before evaporating. 

Most engines have a normal operating temperature right around the boiling point of water (212° F). If the coolant in the engine were to boil, it would not effectively cool the engine since gas will not remove heat from the system nearly as well as a liquid will.
A cooling system at optimal pressure enables the engine to run more efficiently and protects it from damage.
Coolant is usually made up of water and antifreeze in a one-to-one ratio. The water absorbs the heat from the engine and the antifreeze further raises the boiling point of the coolant.

Evaporation of coolant is undesirable because gaseous coolant will either leave the system entirely through a leak or will take up more space than it should which causes overpressurization. 

To avoid overpressurizing, which can damage components of the system, a spring-loaded valve on the radiator cap vents excess coolant into the expansion tank (also known as a reservoir). Under lower pressure, the cap draws the coolant back into the cooling system. 

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