Principal is the original sum of money that's borrowed in a loan or placed into an investment. The term translates to "first in importance" in Latin and a loan or investment begins with this amount. Principal serves as the foundation for calculating interest on a loan or for the returns on an investment. Amortization schedules and other components of a transaction also rely on principal. It's also the face value of a bond that will be returned to the bondholder when the bond matures.