Principal
GeneralThe original amount of money borrowed or invested, not including interest or earnings. On a loan, your payments go toward both principal and interest; paying down principal faster saves money over time.
Related terms
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Interest rate
The percentage a lender charges you to borrow money, or the percentage a bank pays you for keeping money in a savings account. Lower rates are better for borrowing; higher rates are better for saving.
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Compound interest
Interest calculated on both the original amount and the interest already earned. Over time, compounding causes savings to grow faster and debts to grow larger. Starting early makes a significant difference because of this effect.
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Balance
The amount of money in an account at a given time, or the amount still owing on a loan or credit card. A positive bank balance means you have funds available; a loan balance means you still owe money.