What Is Principal?
Definition
Principal: The starting amount that interest is calculated on: the money borrowed in a loan or deposited in a savings account.
Principal is the starting amount that interest is calculated on. In a loan it is the money you borrow; in a savings account it is the money you deposit. With simple interest, interest is always calculated on the principal alone; with compound interest, the principal grows with the added interest. Formulas write it as P.
Where it appears in the formulas
With simple interest the final amount is P × (1 + r × t), and with compound interest P × (1 + r/n)^(n × t). In both, the result is proportional to the principal: double the principal and the final amount doubles too.