Principal Payment

Accounting Dictionary

Principal Payment

Money spent to repay a loan.

John borrowed $20,000. He is repaying the loan by making payments of $200. $20 of the loan payment is interest. That means every time he makes a payment, $20 goes to interest and $180 goes to reduce what he owes. After making the payment he still owes $19820 (20,000 -180). We say $180 is the principal payment.

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