Principal Balance

What is a principal balance?

Principal Balance Definition: A principal balance refers to the balance or amount owing on the original sum of funds borrowed for a loan. This amount may also refer to an investment funded by the same loan amount or face value of a bond.

Depending on the loan and repayment arrangement, the principal of the borrowed amount may not be paid back until the interest is repaid in full or as a portion of each installment payment. The term principal refers to the primary or original part of a transaction or the chief parties involved in the investment or funding arrangement. In the case of a loan, the principal balance changes (decreases) only once payments are made against it.

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