In loan terminology, what does principal refer to?

In loan terminology, what does principal refer to?

• A. The amount of money borrowed.
• B. The interest rate charged on the loan.
• C. The monthly payment including interest.
• D. The fees charged by the lender.

Answer: (A)

Principal is the original amount borrowed. It’s the money you agreed to repay before any interest or fees are added. The interest rate tells you how much extra you’ll pay for borrowing, and it applies to the remaining principal over time. Each payment usually covers both interest and a portion of the principal, so as you pay, the principal balance decreases. Fees charged by the lender are separate from the principal and are not the amount borrowed.

Principal is the original amount borrowed. It’s the money you agreed to repay before any interest or fees are added. The interest rate tells you how much extra you’ll pay for borrowing, and it applies to the remaining principal over time. Each payment usually covers both interest and a portion of the principal, so as you pay, the principal balance decreases. Fees charged by the lender are separate from the principal and are not the amount borrowed.