IN SIMPLE WORDS
Principal refers to the amount borrowed from the lender. During repayment, part of each EMI reduces principal and part pays interest.
Why it matters
Understanding principal helps borrowers track how much loan balance remains and how prepayments reduce interest.
WORKED EXAMPLE
If you borrow ₹3 lakh, the starting principal is ₹3 lakh. As EMIs are paid, the outstanding principal reduces.
Questions about Principal
Is principal the same as EMI?
No. EMI includes both principal repayment and interest.
Does prepayment reduce principal?
Yes. Prepayment usually reduces outstanding principal.