Principal amount on a loan is the amount borrowed.

The interest is the amount charged on top of the principal by a lender to a borrower for the use of assets.

**Formula to calculate principal from interest.**

**Example:**

Suppose you were asked to pay $100 more on a loan after a period of 12 months. The interest rate was 5% p.a.. Calculate the money borrowed.

12 months are equivalent to 1 year, therefore;

Therefore, the principal was $ 2,000.