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- Principal
Principal
The principal is the original monetary contribution to the purchase of an asset, before earnings or interest; a principal is also an individual or business which has purchased a surety bond to guarantee the performance of an obligation.
Principal can be viewed as a representation of the capital risked in an investment. The principal amount of an investment is the total amount of money used to purchase the asset, so an investor risks losing some principal in exchange for the possibility of gains or interest.
In reference to debt and lending, principal refers to the sum of money borrowed from a lender. In that scenario, the bond’s principal is its issue price or the loan amount. Alternatively, the principal of a surety bond is the party that has sought insurance from a third party for the bond. A principal can also refer to the owner, typically the chief executive officer, of a firm, partnership, or private company.
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