Principal
Principal is the amount of money you originally borrowed, not including interest or fees. As you make payments on an amortizing loan, the principal balance decreases — the rate at which it decreases depends on the APR and term. The principal is what you actually owe; interest is the cost of being able to owe it.
Principal is the borrowed amount before any interest or fees. If you take a $2,000 personal loan, the principal is $2,000. As you make scheduled payments, each payment splits between interest (calculated on the outstanding principal balance) and principal reduction.
Principal vs amount financed
On loans with origination fees deducted at signing, there’s a distinction between principal (the loan amount on which interest is calculated) and amount financed (what you actually receive). A $2,000 loan with a $100 origination fee has a $2,000 principal but a $1,900 amount financed. You repay based on the principal; you receive the amount financed.
Paying down principal faster
If your loan agreement allows extra payments without prepayment penalty (most personal installment loans do), making additional principal payments reduces the outstanding balance faster, which reduces future interest accrual. Even small extra payments add up: an extra $25/month on a $2,000 loan can shave several months off the term and save meaningful interest.
When making extra payments, specify they should be applied to principal rather than to advance the next due date: some lenders default to the latter, which doesn’t actually save interest.