When you borrow money, you often have to pay interest on the amount you borrow. This means you will pay back 1) interest and 2) the principal. The principal balance, or part of the loan, is simply the amount you wish to borrow. For example, if you need $10,000, you can borrow $10,000 at a 3% interest rate. Your “principal” will be the initial $10,000 balance.