<p>A principal reduction is not an interest rate reduction. It means the principal - that is the loan balance - would be reduced by 3.33%. So say you still owed $1,000 - a principal reduction of 3.33% would mean the loan balance would be reduced by 1000 X 3.33%= 33.3. $1000 - 33.3 = $966.70(your new loan balance).</p>
<p>Not nearly as good a deal as an interest rate reduction of 3.33% I am afraid.</p>