Homophones principal and principle meaning

But what exactly does principal mean when it comes to loans? Keep reading this complete guide to find out everything you need to know about loan principal. The principal of a loan refers to the amount of money that was originally borrowed. The principal is different from the loan balance, which is the amount still owed.

Principal + interest is called

The principal stays the same over the life of the loan unless you refinance , while the balance goes down as you make payments. When you make loan payments, part goes toward interest and part goes toward the principal. In the beginning, most of each payment goes to interest since the principal is still high. As you pay down the loan, the principal gets lower.

This means less interest is charged each month, so more of the payment goes to principal. You can find the principal amount on any loan disclosure paperwork you received when taking out the loan.

Principal vs principle money

This includes:. The principal is also listed on your monthly statements so you can see how it changes over time. Many lenders let you view this info by logging into your online account too. As mentioned above, principal refers to the amount borrowed, while interest is the cost of borrowing that money. Your interest rate is usually shown as a percentage of the principal balance.

This is why early in a loan, most of your payment goes toward interest—because the principal is still high. While the principal stays the same, the balance changes over time.