The principal is the original sum your company borrows under a facility, before any interest or charges are added. It is the core amount that you agree to repay over your term.
How principal and interest relate
Interest is calculated on the principal that is still outstanding. As you make repayments, part of each payment reduces the principal, and the rest covers interest for the period. As the principal falls, the interest accruing on it tends to fall too.
- Your offer states the principal amount agreed for your company.
- Each repayment chips away at the principal and pays the interest due.
- Reducing the principal faster, where your agreement allows, lowers the interest you accrue.
Why the term matters
People sometimes confuse the principal with the total amount repayable. The total includes interest and any charges across the term, whereas the principal is just the borrowed sum. Keeping the two separate makes it easier to understand the true cost of borrowing.
Credicorp lends only to UK limited companies and LLPs for business purposes. We do not quote amounts here, so always check the principal stated in your own offer or agreement rather than relying on any general description.
See also: What does outstanding balance mean?, Can I pay my loan off early? and Does interest keep building while my company is in arrears?.