GlossaryReference
Principal
The original amount of money borrowed or invested, before any interest.
What Principal means
Principal is the amount of money you originally borrow or invest, separate from the interest it generates. On a loan, interest is calculated on the remaining principal, so paying down principal faster reduces the total interest you owe. On an investment or savings account, your principal is the amount you deposited; returns and interest build on top of it.
Example
Borrowing $8,000 for a car means your principal is $8,000. If the total cost using 8% APR over 48 months is $9,354, the extra $1,354 is interest on the principal.
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Disclaimer
Definitions are simplified for educational use and are not personalized financial, investment, tax or legal advice.