Whenever you have to get a loan from a bank or other financial institution, you may see certain wording on your paperwork including interest and principal. Interest refers to the extra amount of money that you must pay the bank when you borrow money. The amount of the interest depends upon the amount of the loan and the interest rate. If the loan amount that you need is a high number, then the interest will be higher than if you received a small loan.
The interest amount is spread over the length of the loan. It is important to pay on the principal because that would make the interest be smaller because the loan amount is now smaller. Principal refers to the money borrowed.