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Principal is the original amount of money borrowed in a loan or the initial amount invested, before any interest is added or earned.
In Depth
When you take out a loan, the principal is the initial sum you receive. When you make a payment on a loan, a portion goes towards reducing this principal amount, and another portion covers the interest. In investments, the principal is the initial capital you put in, separate from any earnings or losses.
Example
If you borrow $10,000 for a car, the principal amount of your loan is $10,000.