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What does Capitalizing interest mean?

幫考網(wǎng)校2020-10-13 16:30:41
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Capitalizing interest means adding unpaid interest to the principal balance of a loan or investment, which then becomes the new principal balance. This can happen in various situations, such as when a borrower is unable to make interest payments on a loan or when interest is earned on an investment but not withdrawn. By capitalizing interest, the borrower or investor can avoid immediate payments and instead pay interest on a larger balance over time. However, this can also result in higher overall interest costs in the long run.
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