Paying off a loan is the most critical stage in the loan process. If you want to take out a loan, you’ll need to understand the financial jargon that accompanies it before you go down the loan route. Otherwise, you can get caught in some less-than-ideal situations.

One of the most common terms you'll come across is "loan principal" or "principal of a loan." If you've been researching loans for over five minutes, you've likely already faced this somewhat confusing term. So, we're about to demystify the word and help you understand all the ins and outs.

What Is The Definition Of The Principal Of A Loan? 

A loan principal is the amount you borrow. For instance, if you take out a loan for $10,000, the $10,000 is the loan's principal. It's the basis upon which repayment conditions and interest rates are added. In other words, it's the lump sum you receive from the lender.

Over time, your loan generates interest, which you also repay, increasing the total amount you pay back by the end of the loan term.

However, borrowing money isn't the only financial space where the term "principal" is used.

For example, in the investment world, the term refers to the original amount you put into an investment or the initial value of an asset or investment. It can even be the original figure you put into your 401(k) plan. In business, the term refers to the primary stakeholders or owners of the company or the main parties involved in a vital transaction.

However, there are two principles to understand in the context of loans. 

Understanding The Two Types Of Loan Principals

These principal balances are initial and outstanding, which we'll cover in detail below.

Initial Principal

We've already discussed this principal—the original amount you borrowed from the lender. As stated, it's the baseline for determining repayment schedules and establishing interest.

Outstanding Principal

When paying off a loan, a portion of each payment reduces the principal. The leftover balance is the outstanding principal, which accrues interest until the loan is completely repaid.

How Principal Impacts Paying Off A Loan

Using an example, it may be easier to understand how the principal impacts loan repayments.

So, imagine you take out a car loan with an initial principal balance of $15,000. As you repay the initial principal, you reduce your outstanding principal balance to $11,000 after the first 12 months. All interest for future payments will then be calculated based on the new outstanding balance ($11,000, in this case). 

Ultimately, the size of your principal amount directly correlates to the overall cost of your loan. A larger principal equals higher interest payments throughout the loan's lifetime, provided the loan term and interest rate remain the same.

How Does Loan Principal Apply To Carolina Title Loans Inc.?

Regardless of the type of loan you get, the principal applies. Therefore, you need to understand the terms to borrow responsibly with us at Carolina Title Loans Inc.!

We offer both installment loans and title loans. You can borrow up to $1,500 as your initial principal with the former. You can borrow between $601 and $15,000 as your initial principal with the latter. The amount you borrow not only depends on what you qualify for but also on what you need. 

As we've mentioned plenty of times before, you should only borrow what you need. Otherwise, you'll waste time repaying a loan that was too big for your requirements, and nobody wants to do that. 

How Can You Get A Title Loan In Missouri?

If you're dealing with larger emergencies and can satisfy these requirements, a title loan is an option for you:

• Lien-free title — We can only accept lien-free titles because we put a lien on your title to secure the loan, which is impossible if there's already one in place.
• Vehicle — We accept cars, trucks, or vans. We don't work with motorcycles, tractors, trailers, or other modes of transport.
• ID—You must be 18 or older to get a title loan. You can use any government-issued photo ID (e.g., driver's license, passport) to verify that you meet this requirement.

How Can You Get An Installment Loan In Missouri?

If you're dealing with a minor emergency and can satisfy these requirements, an installment loan is an option:

• ID — Again, you must be at least 18 and provide a government-issued photo ID (e.g., passport, student ID card, driver's license).
• Pay stub — Please make sure it's your most recent one.
• Checking account statement — This must be from an account in your name. 

Get A Loan From Carolina Title Loans, Inc. Today!

The principal of a loan is the original amount you borrow or the leftover balance after you've made a few repayments. 

With that in mind, you are ready to determine whether our loans are within your budget. If they are and you need fast cash for a financial emergency(or you'd like us to answer some questions before proceeding), fill in our easy online inquiry form! We’ll reach out to help to explain the emergency loan process in depth. 

Note: The content provided in this article is only for informational purposes, and you should contact your financial advisor about your specific financial situation.