When a farmer pays a loan in full, the part of the payment equal to the amount borrowed is called what?

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Prepare for the FFA Farm Business Management Contest with quizzes featuring flashcards and multiple-choice questions, each with hints and explanations. Get ahead for your exam today!

Multiple Choice

When a farmer pays a loan in full, the part of the payment equal to the amount borrowed is called what?

Explanation:
The main idea is that loan payments have two parts: the amount borrowed (principal) and the cost of borrowing (interest). The portion of a payoff that equals the amount borrowed is the principal, because it reduces the loan balance to zero. Any interest that has accrued would be paid as well, but it’s separate from the principal amount. Fees would be additional charges, and depreciation is an accounting concept for asset value, not part of repaying a loan.

The main idea is that loan payments have two parts: the amount borrowed (principal) and the cost of borrowing (interest). The portion of a payoff that equals the amount borrowed is the principal, because it reduces the loan balance to zero. Any interest that has accrued would be paid as well, but it’s separate from the principal amount. Fees would be additional charges, and depreciation is an accounting concept for asset value, not part of repaying a loan.

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