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 loan principal?

The initial amount you borrow when you accept money to purchase a car, a house, or education is referred to as the principal. It forms the basis upon which interest rates and repayment conditions are applied. It's the money you receive from the lender and must repay during the loan period along with interest and fees.