What is a Principal Amount?
The term principal amount might be familiar to those who might have a taken a loan or for others who might be involved with the banking or the finance industry. For others, the term might sound a bit new. This amount is nothing but the amount which has been borrowed from a bank or a financial institution. This could be the face value of the debt security. This can also refer to the part of the money borrowed which remains unpaid. And this excludes the interest. Another way of looking at the amount is that it is a part or a portion of the monthly installments which are paid in order to reduce the balance of a mortgage. Some also say that this amount is nothing but the original investment.

The reason why the principal amount has shot to significance of late is the fact that more and more Canadians are opting to take a loan. Many feel that it would be best to take a loan and buy their dream house or their dream car. People feel so as it would be a long wait before they can save up enough money to buy whatever they want. Instead, if they take a loan, they can buy whatever they want immediately and start to enjoy it. The loan can then be repaid back over a period of time. This is a very convenient way to buy things which one might not be able to afford immediately.

Depending on the principal amount, you can decide on how you want to repay the loan so that you will be able to save maximum. Sometimes, by repaying the loan on a weekly or on a biweekly basis will help you save much more money than if you repaid the loan on a monthly or a quarterly basis. That is to say that when you increase the frequency of payments you make, you will be able to save a lot more and you will see that the amount reduces much faster.

Most financial institutions in Canada let you increase your payment amount. That is to say that though you would have agreed on a particular amount at the time of signing the agreement, there is a possibility that you can pay more that the amount agreed if in case you have the money. It is advised that you take up on this offer as it will help you save more. By doing this, you will again realize that your amount which is the principal comes down sooner than you expected it to.

Apart from being able to increase your monthly payments, many banks in Canada let their customers pay a lump sum to repay their loan. If you have the money to do so and if your bank will let you pay it that way, then make sure you seize the opportunity. This is sure to bring down the principal amount and also the duration for which you will be repaying the loan.

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