What is a principal?
Principal can refer to either:
A. a person who authorizes an agent to act, to create legal relationships with a third party (most important/senior person in a group/firm/agency)
B. an amount that is lent or invested, on which interest is paid
What is a principal broker/agency principal?
In a real estate agency or brokerage, the principal is the responsible party, also called the managing broker or the qualifying broker. The principal is legally authorized to enter contracts, as well as the person legally responsible for supervising agents employed by or associated with the principal or their agency/brokerage. The relationship between agents and the Principal is fiduciary and requires the agent to be loyal to the principal.
A practice whereby a major party in a transaction, such as a seller or buyer, retains anonymity by using an agent for negotiations with a third party means there is an undisclosed principal. In this case, the agent pretends to be acting in self-interest.
What is a principal in finance?
Another common use of the term is to refer to an amount of money that is loaned, borrowed or invested and it is separate from interest.
The principal of a loan — when making regular payments on a loan, they are usually scheduled so that payments first cover interest charges and then the principal, which is still referred to as such, even if the amount gradually decreases.
For example, if you take out a loan of $65,000, the principal is $65,000. After having paid $30,000, the remaining $35,000 is still called “the principal”.
The principal of an investment – the term can also apply to the original amount that was invested, not including any earnings accrued since.
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