Principal
The original amount of money borrowed, or the portion of a payment that reduces that balance.
What does principal mean?
On a loan, the principal is the sum you borrowed; in each payment, the principal portion is what actually lowers your balance, separate from the interest. Paying extra principal shortens the loan and cuts total interest.
Put it to use
Related terms
Principal — frequently asked
How do I pay down principal faster?
Add extra money marked “apply to principal,” make biweekly instead of monthly payments, or round each payment up. Because interest is charged on the balance, cutting principal early reduces every future interest charge and shortens the loan.
Does my whole monthly payment reduce the principal?
No. Each payment first covers the interest due for that period; only the remainder reduces principal. Early in a loan that remainder is small, which is why balances fall slowly at first and faster later.