---
title: "Principal: definition | Desert Rock Capital"
url: "https://www.desertrockcapital.com/glossary/principal"
description: "Principal is the amount of money actually borrowed, before any interest or fees."
---

Loan costs

# Principal
All lending terms
Definition

Principal is the amount of money actually borrowed, before any interest or fees. As payments are made, the portion applied to principal reduces the remaining balance.

Principal is the original sum you receive and are obligated to repay, separate from the interest and fees that make up the cost of borrowing. On an installment loan, interest is calculated on the outstanding principal, so as the principal balance falls over the life of the loan, the interest portion of each payment generally decreases and the principal portion increases. Paying more than the scheduled amount, when a loan permits it, applies the extra toward principal and reduces the balance faster, which can lower the total interest paid. The principal is also called the loan amount or the balance owed.

Source: [Consumer Financial Protection Bureau](https://www.consumerfinance.gov/ask-cfpb/is-it-better-to-pay-off-the-interest-or-principal-on-my-auto-loan-en-845/). This definition is general educational information, not legal or financial advice.
Related

- [Personal loans](/services/personal-loans)
- [Signature loans](/services/signature-loans)
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