Principal
Also called: loan principal
What is Principal?
Principal is the amount actually borrowed, separate from the interest charged on it. Each EMI repays a slice of principal alongside the month's interest, and the outstanding principal is what future interest is computed on.
Why Principal matters
Only principal repayment reduces debt; interest is the cost of carrying it. This is also why loan repayments do not appear in the P&L — the principal portion is a balance sheet movement, not an expense.
Principal formula
Outstanding principal = Original principal − Principal repaid to date
Interest for a month = outstanding principal × monthly rate.
How Principal works in practice
Track the outstanding principal separately from the total EMI when planning cash flow, and remember that prepayment reduces principal directly, cutting all the future interest it would have generated.
Frequently asked questions
Only the interest portion. The principal portion reduces the loan liability on the balance sheet.