Notional Principal Amount

Definition - What does Notional Principal Amount mean?

A notional principal amount is a theoretical sum of money that is determined at a set rate between two parties which represents the value of the interest being exchanged on any principal loan sum. There is no cash that changes hands in a notional principal amount. It is just a bar that is set to determine what two parties expect out of a transaction wherein many times both have interest assumable.

Justipedia explains Notional Principal Amount

A notional principal amount is considered between banks and their lenders. It helps to ensure that if there is a fall in the economy there can be a figure referred back to and added to the principal in some form if the interest rate goes below that which was expected between parties at the time of the loan.

Share this:

Connect with us

Find a Lawyer