Loans: principal vs. interest
A loan payment is part debt paydown and part expense — here's why we split it and what documents we need.
Loans: principal vs. interest
A loan payment has two parts. The principal portion pays down what you owe (it reduces a liability on your balance sheet), and the interest portion is a business expense. Only the interest hits your profit and loss.
To split payments correctly and track your balance, we need your loan agreement and an amortization (payment) schedule or statements that show the remaining balance.
We're expanding this guide
A fuller explainer is on the way.
What this article will cover
- Why only interest is an expense
- What an amortization schedule is and where to get one
- Tracking your loan balance over time
Was this helpful?