The principal of a loan refers to the original sum of money borrowed or the outstanding balance still owed on a loan, apart from interest and other fees. Essentially, it is the amount that you agreed to pay back when you took out the loan.
For example, if you take a loan of $10,000, the principal is $10,000. When you repay the loan, your payments will typically cover both the principal and the interest charged by the lender. Over time, as you make payments, the principal decreases, and you owe less money.
Understanding the principal is crucial because it affects how much interest you will pay over the life of the loan. The larger the principal, the more interest you will usually end up paying, which is why many borrowers aim to pay off their loans as quickly as possible to minimize interest costs.