2 min read
Definition
The principal is the sum you actually borrow, before any interest. Each repayment on an amortising loan clears a slice of principal plus the interest due, so the principal falls to zero by the end of the term.
Why it matters
Interest is charged on the outstanding principal, so paying it down — or borrowing less of it — directly cuts cost. The total you repay minus the principal is the cost of credit. See amortising vs interest-only.
Related reading
Amortisation
Amortisation is the process of repaying a loan in regular instalments so that the balance reduces to zero by…
Read →
Total cost of credit: seeing past the monthly payment
A low monthly payment can hide an expensive loan. The figure that tells you the truth is the total cost of…
Read →
Reducing-balance interest
Interest charged only on the outstanding balance of a loan, so the cost falls as the balance is repaid — the…
Read →
Amortising vs interest-only: two ways to structure repayments
How a loan clears matters as much as how much it costs. An amortising loan pays down principal steadily; an…
Read →Funding for UK limited companies
Credicorp lends to your company, not to you personally — short-term working capital with no personal guarantee. See what your business could access.