What does principal mean in finance?

In finance, principal refers to the face amount of a debt instrument or an amount of money borrowed. How Does Principal Work? For example, if you borrow $25,000 from XYZ Bank to purchase a car, the principal balance is $25,000. As time goes by and you make payments on the loan, the principal balance goes down.

What does principal mean on a bond?

For bonds, principal generally refers to the bond 's face value or the par value. Thus, a bond with a $10,000 face value represents a $10,000 loan to the issuer (i.e., $10,000 of principal). It is usually equal to the amount the bondholder receives on the bond's maturity date. Why Does Principal Matter?

What is a principal in banking?

Principal. Principal can refer to an amount of money you invest, the face amount of a bond, or the balance you owe on a debt, distinct from the finance charges you pay to borrow. A principal is also a person for whom a broker carries out a trade, or a person who executes a trade on his or her own behalf. Dictionary of Financial Terms.