principal
PRIN-suh-puhl
/ˈprɪnsəpəl/
The original sum of money lent or invested on which interest is paid.
In finance, it refers to the core debt balance itself, separate from any interest, fees, or penalties that accumulate over time.
The story behind the word. From the Latin 'principalis,' meaning 'first' or 'most important.' In financial terms, it refers to the 'most important' sum of money—the original debt—upon which all other calculations (like interest) are based.
Word relationships
- capital: Capital refers to total accumulated wealth or assets used for investment, while principal is the specific initial sum of a single loan.
- interest: The fee charged by a lender for borrowing the principal sum.
Commonly confused with
- principle: A principle is a moral rule or scientific law, while principal is a sum of money or a school head.
Word family
- principally (adverb): For the most part; chiefly.
Collocations
- principal amount
- repay the principal
- principal and interest
Example sentences
- "In the early years of a mortgage, most of your payment goes toward interest rather than reducing the principal." A mortgage payment breakdown.
- "He paid off the principal of the loan ahead of schedule to avoid future interest charges." A standard loan agreement.
Memory hook
Remember that the 'Principal' of your school is your 'pal' (most important person), and the 'Principal' of your loan is the 'pal' (most important sum of money) you must pay back. The principal is the primary sum of money.
When not to use
Do not confuse with 'principle', which means a fundamental truth, rule, or moral belief.
Fun facts
- The spelling distinction between 'principal' and 'principle' is one of the most common errors in business writing, often flagged by automated editors.
Take your vocabulary further with LangBlitz
Our English vocabulary app: FSRS spaced repetition, 5,000+ curated words across 119 topic groups, CEFR A1 to C2. Explore your mastery with the beautiful Vocabulary World feature.