The principal, as most of you already know, is the original sum of money borrowed in a loan or the amount invested, excluding any interest or additional fees. For loans, the principal decreases as payments are made, with each payment generally covering part of the principal and part of the interest. The repayment of principal is essential for reducing the total outstanding balance. Interest is typically calculated based on the remaining principal, so paying down the principal faster can lead to lower interest costs over the loan’s lifetime. Managing principal effectively helps save money.