Principal

Principal is the amount of a loan still owed, separate from interest. On a mortgage or auto loan, it starts at the amount borrowed and shrinks as scheduled payments arrive. On a credit card, it is the balance carried across billing cycles — the number interest is calculated against.

Every payment on an interest-bearing loan splits into two pieces. Interest is the lender's charge for the month, computed on the current balance. Principal is what actually reduces the debt. In the early years of a mortgage, most of each payment is interest because the balance is still large; in later years, more of the same payment lands on principal because the balance has shrunk.

Paying extra "toward principal" — usually a checkbox or memo line at the servicer — lowers the balance immediately, which reduces every subsequent month's interest. On a card, any amount above the minimum works this way by default once the minimum is met.