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Principal is the amount of money you originally invest. Or, for something like a loan (e.g. a mortgage), it is the amount you still owe to the issuer of the loan (e.g. the bank).

Expanded Definition

If you've got principal, you can make money. Principal earns interest for its owner. For a savings account, the owner is the investor, and the bank pays interest to the investor. For a loan, the owner is the bank (or other entity), and the borrower pays interest.

In the case of a savings account, the principal grows as interest payments are added. In the case of a loan, the principal decreases until it reaches zero, at which point the loan is paid off.

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