Principal & Interest

The amount of money borrowed (principal) and the additional cost paid for borrowing (interest) in a loan or credit agreement.

Principal & Interest refers to the components of a loan payment. The principal represents the initial amount borrowed or the outstanding balance of the loan. It is the actual amount of money borrowed from a lender. On the other hand, interest is the additional cost charged by the lender for borrowing the money. It is calculated as a percentage of the principal and is typically expressed as an annual interest rate. When a small business owner makes loan payments, a portion of the payment goes towards reducing the principal amount, while the remaining portion covers the accrued interest. Understanding the breakdown of principal and interest helps business owners manage their loan obligations and track the progress of their debt repayment.