Sources: IRS, SEC, Federal Reserve, U.S. Bureau of Labor Statistics & U.S. Census Bureau. See our editorial standards.
The original sum of money invested or borrowed, before any interest is added.
Definition: The original sum of money invested or borrowed, before any interest is added.
Principal is the starting amount — the money you deposit into an investment or the amount you borrow on a loan. Interest is always calculated as a percentage of the principal (and, with compounding, of accumulated interest too). On a loan, each payment chips away at the principal while also covering interest.
Borrow $20,000 for a car and the $20,000 is the principal. Early payments are mostly interest; as the principal shrinks, more of each payment goes toward the balance.
Put this concept to work with our free Loan Calculator.
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