Finance Dictionary : Principal


Learn about the significance of principal in loans, representing the initial borrowed amount, excluding interest. It's a crucial element in the borrowing and lending process.



Principal – The Fundamental Loan Amount


Principal denotes the foundational amount of a loan that is originally borrowed by an individual, business, or entity. It represents the core sum of money sought for a specific financial purpose, excluding any interest or additional charges. As borrowers make repayments, the principal diminishes over time.


Understanding the concept of principal is essential for those involved in lending and borrowing activities, as it is a key component in the calculation of interest and the repayment of loans. It serves as the basis for determining the total cost of borrowing and the duration required to repay the loan in full.


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