Financial glossary
Principal
Principal is the original amount borrowed or invested, before interest, returns, fees, or repayments are applied.
What principal means
In a loan, principal is the amount owed before interest. In an investment or deposit, it commonly means the amount contributed before growth is added.
Principal in loan calculations
Loan interest is calculated using the principal or outstanding balance. As repayments reduce the outstanding principal, the interest portion generally falls in a reducing-balance schedule.
Principal in savings and investments
The starting principal and later contributions form the invested amount. Estimated gain should be shown separately so that growth is not confused with money contributed.
Simple example
If you borrow ₹2,00,000, the initial loan principal is ₹2,00,000. Interest and eligible charges are separate from that starting amount.