Principal

The original amount borrowed or invested, before interest.

Principal is the base number everything else is calculated from. On a loan, it's the amount you borrowed, before any interest is added. On an investment, it's the amount you put in, before any growth. Every payment on a loan splits between principal (paying down what you owe) and interest (the cost of borrowing it).

Worked Example

On a $20,000 auto loan, the $20,000 is the principal. Your first payment might be $380, split as $310 interest and $70 principal — early payments are interest-heavy because interest is calculated on the outstanding balance, which starts at its highest point.

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