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Editorial Policy & Integrity PactThe principal is the original sum of money borrowed in a loan, or the remaining amount owed, excluding interest and fees.
Your monthly payments are divided into principal and interest. In early payments, a higher percentage goes toward interest. Rapidly paying down the principal reduces the total interest generated over the life of the loan.
Many modern lenders allow you to pay down the principal early without penalties, which can save you a significant amount of money in interest. Always verify if your specific contract has a 'prepayment penalty'.
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