In finance, the principal is the original amount of money borrowed in a loan or invested, separate from any interest or returns. When you take out a mortgage or loan, the principal is the actual sum you received and must repay, while interest is the cost charged for borrowing that money. Monthly loan payments typically include both principal repayment and interest charges. Early in a loan's term, payments go mostly toward interest; over time, more goes to principal reduction. Understanding principal helps borrowers track how much they still owe and how their payments are being applied. The term also applies to investment amounts.