How does the money supply behave when bank loans are repaid? In a fractional reserve system when banks lend out money, that money is created out of thin air by a accounting journal entry, and the money supply goes up by the amount of the loan &amp; when the loan gets paid off, that money disappears back into thin air and the money supply goes back down which is often also described as "destroying the money"

As under normally amortized loan, out of monthly payments, some part goes towards interest &amp; some towards principal repayment, so the question is does the money equivalent of principal repayment disappears into thin air every time the payment is made towards principal of the loan, or does it only disappears at end of the loan term all at once when the loan has been repaid in full?

If the money gets destroyed or rather disappears from the money cycle every time the principal is repaid from the monthly payments, then does it means that the banks are only left with the interest parts &amp; nothing out of the principal portion on their books?

Also how does the money gets depleted from the money cycle and disappears into thin air in the case of "interest only loans", where during the term of the loan only interest payments are being paid by the borrower &amp; the principal is repaid all at once at the end of the term of loan in form of a single one time payment.

So is it that in such interest only loans because the principal gets repaid all at once at the end of the loan term so at that time immediately it gets depleted from the money cycle all at once &amp; disappears into the thin air?

And most importantly: if all of the money equivalent of the principal amount of loans disappears then how does the banks end up recovering the actual amount loaned by them to the others &amp; not just the interest on that loan?
The money is removed when the loan principal is repaid. The actual point in the loan this occurs depends on the loan terms. For a typical compound interest rate loan, this means a small portion of the principal is repaid every month, and a matching liability deposit (money in the customers account) is removed.

For an interest only loan, this occurs at the end of the loan - assuming all the principal is repaid then.

Interest payments essentially circulate through the monetary system. They're deducted from the customer's account, recognised as income by the bank, and then paid out as some form of expense, e.g. salaries, rent, taxes, etc. They may also be moved into an internal account to provide required loss provisions on loans. 

Loan defaults are also an expense, and this is the achilles heel of the banking system. If defaults on loans exceed the bank's loss provisions and profits from interest, then the bank will have to write off against its capital - and this interferes with the regulatory controls on lending, causing the money supply to shrink. In practice, central bank or government intervention is inevitable if this occurs.

As far as the relationship of principal to the money supply. Essentially the banking system relies on new lending always being sufficient to replace the money being removed. In most banking systems, new lending is typically in excess of loan repayment, and so we see the money supply more or less continuously expanding.