Definition
The original amount of money you borrow on a loan or invest, not including interest or returns.
What to consider
- Focus on reducing your principal to lower the overall cost of a loan.
- Extra payments can make a big difference over time.
- Remember that your monthly payment is split between interest and principal.
Real world scenarios
- Raj’s monthly mortgage payment includes a portion for principal and a portion for interest, slowly building home equity.
- Sasha makes extra payments toward principal on her auto loan, trimming the total interest and shortening the loan term.
- At maturity, an investor expects to recoup the full principal of a bond, in addition to the interest earned over its life.
Related terms
Related Playbooks
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