What is the term for the amount of money that is agreed to be paid back which solely reduces the principal of the loan?

The term that describes the amount of money paid back that specifically reduces the principal of a loan is known as a principal payment. When borrowers make principal payments, they are directly lowering the total amount they owe, which reduces the debt. This concept is important in the context of loans because while borrowers are also responsible for paying interest, which compensates the lender for the risk and cost of lending, a principal payment focuses solely on reducing the initial borrowed amount.

The other options pertain to different financial concepts. Interest payments represent the cost of borrowing money and are separate from the principal amount. Fees could refer to any additional charges associated with taking out or managing a loan and do not directly impact the principal. The loan amount refers to the total sum borrowed, which is not the same as the payment made aimed at reducing that sum. Understanding the distinction between these terms is crucial in personal finance, particularly in managing debt effectively.