What are principal and interest payments?

When you take out a student loan or a mortgage, you’ll typically start making monthly payments until you pay off the amount you owe. This is called amortizing. These amortized payments go toward your principal loan amount—the amount you originally borrowed – plus any interest and fees the lender charges you to take out the loan.

However, the amount of your payment that goes towards principal versus interest can shift over the term of the loan. In the beginning, much of your payment is applied to interest, whereas near the end, you’re paying mostly towards the principal.

With each monthly payment, the amount dedicated to paying off the principal grows as the interest shrinks—until you’ve succeeded in paying off your loan.