Unpaid Principal Balance

The loan's unpaid principal balance is the portion of the loan that has not yet been repaid to the lender by the borrower. This amount represents the residual risk of nonpayment borne by the lender. Because a typical loan payment includes both an interest charge and the return of some principal, the unpaid principal balance cannot be computed simply by subtracting all loan payments to date from the original loan amount. To calculate the outstanding principal sum, you must remove the interest paid to the lender.