Over 700 finance terms, Shmooped to perfection.
Principal - the original amount that you borrow that you eventually have to pay off. When people quote the size of their mortgage, the number they are quoting is usually the principle and it is your pal.
Interest rate - The percentage of the principle that you owe.
This number is usually compounded and amortized. Compounding - The process of computing interest owed. In the case of bank interest for example, you might deposit $1,000 into a bank with a 5% savings account rate. That money is compounded daily as the marketing slogan toots of the bank is .05/365 * principle. So after one day your thousand dollars is worth $1,000.14