In a fully-amortizing loan, P and I refer to which terms?

In the context of a fully-amortizing loan, the terms P and I specifically refer to Principal and Interest. A fully-amortizing loan is structured in such a way that during each payment period, a portion of the payment goes towards paying down the principal amount borrowed (the original loan amount), while the other portion covers the interest charged on the outstanding balance.

Principal is the amount of money that is borrowed, and as payments are made, the principal amount decreases until it reaches zero by the end of the loan term. Interest is the cost of borrowing that principal amount, calculated as a percentage of the remaining balance. With each payment in a fully amortizing schedule, the mix of how much goes to principal versus interest changes over time, with more of each payment contributing to principal as the loan matures.

Understanding the meanings of Principal and Interest is crucial for managing loans effectively, as it impacts the total amount of interest paid over the life of the loan, as well as the timeline for paying off the debt.