During my college, I learned what is principal amount in loan. The principal amount of a loan refers to the initial sum of money borrowed from a lender, excluding any interest or additional charges. It is the actual amount disbursed to the borrower, which must be repaid over the loan's tenure.
What is a Loan Principal Amount?
Understanding the principal amount is crucial, as it forms the basis for calculating interest and determining monthly repayments.
For instance, if you take a personal loan of Rs 5,00,000, the principal amount is Rs 5,00,000. The lender charges interest on this principal, and your monthly EMI payments consist of both principal and interest components.
Over time, as you repay the loan, the principal outstanding decreases, leading to a reduction in the interest portion of your EMI.
It's important to note that the principal amount does not include any processing fees, insurance premiums, or other charges that may be associated with the loan. These additional costs are separate and are typically added to the total repayment amount.
To manage your loan effectively, it's advisable to keep track of the principal balance and understand how your repayments are applied. I hope you understand what is a principal amount of loan.
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If you have ever stepped in a bank for taking a loan, you must have inquired about the terms ‘ principal amount’, ‘closing balance’ , administrative fee etc. I was the same as you, confused about the principal amount meaning. Until then, I understood how simple it was.
Keep reading to know more.
What is principal amount in loan ?
In simple terms, it is the initial sum or size of loan that has been borrowed from the bank. It is also referred to as the amount still owed on a loan.It is the amount of money initially borrowed from the lender( bank) and as the loan is repaid, it can also refer to the amount of money still owed.
The principal amount of loan is added along with interest to ask the customers to repay their loans.This principal amount is found on loans of various types, be it personal loan, loan against property, commercial loan etc.
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eg. If I take a loan for Rs.50,000, the principal loan will be Rs50,00)(money that you originally agreed to pay back). Remember, the principal amount does not include capitalised interest or any extra charges/fee.
Usually, the term principal sum is used as a synonym for principal loan. If you have more questions about what is principal amount meaning. Keep an eye here!
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2022-03-07T19:58:44+00:00 2022-03-07T19:58:45+00:00Comment
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