what does the word principle mean in a financial sense?

Answer 1

No. The other way around. This is the balance owed that DOESN'T include interest.

Let's take an example.

If you borrow $100,000 at 10% with no annual payments due and interest calculated using annual compounding.

In year 0, the principle owed is $100,000.

In year 1, if you don't pay any money then the principle owed is $100,000 and $10,000 interest for a total of $110,000 owed.

In year 2, at the end of the year you would owe $121,000 comprised of $100,000 principle and $21,000 in interest ($10,000 from last year and 10% on $110,000).

In year 3, if you paid off $50,000, you would have racked up another $12,100 in interest. This would mean that your $50,000 would have paid off $33,100 ($10,000+$11,000+$12,100) and the remaining $16,900 would have gone to principle. You would then owe $83,100 in principle.

Answer 2

Principle means the amount of money you borrowed and interest is what you pay the lender for loaning you the money By paying extra money and specifying you want to pay it on the principle you save on the interest by reducing the amount of the money borrowed. At the beginning of your loan most of your pymt goes to interest with a small amount going to pay off the original amount borrowed so by paying extra on the principle you can reduce your pymts yo have to make. On a 30 yr loan on a house if you make one extra pymt a year and apply it to the principle you can reduce it to a 20 year loan savings, well you can see the savings

Answer 3

remaining balance after the interested is added on