Principal

Principal is the original amount of money borrowed in a loan or the original amount invested. It does not include interest or earnings.

When you make loan payments, a portion goes toward interest and a portion toward reducing the principal. As you pay down the principal, less of each payment goes to interest. Understanding principal is key to understanding amortization schedules.

Related Terms

Interest

Interest is the cost of borrowing money or the return earned on deposited funds, typically expressed...

Amortization

Amortization is the process of paying off debt through regular payments over time. Each payment cove...

Mortgage

A mortgage is a loan used to purchase real estate, where the property serves as collateral. The borr...

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