Definition: The amount of money borrowed before interest and fees.
In plain words
Principal is the amount you borrow, before any interest or fees.
Why it matters
Interest is usually calculated on the principal still owed, so paying it down lowers future interest. Some fees are added to the principal, so check whether the amount you owe is more than the cash you got.
Example
Illustrative example: You borrow $2,000 at 20% a year. Early on, most of each payment covers interest. As the principal falls to $1,000, the interest part of each payment roughly halves.
Always read the term in the context of your own agreement and local law.
Related terms and guides
Loan term · Origination fee · Loan-cost calculator