interest capitalization

Meanings

1. 1noununcountable

   The process of adding unpaid interest to the main amount of a loan so that later interest is charged on the larger total.

   Grammar: Usually no a: interest capitalization occurs when payments pause.

   Patterns

   • interest capitalization on something
   • avoid interest capitalization

   Interest capitalization raised her loan balance after the grace period ended.

   Paying the interest monthly prevents interest capitalization.

   The lender explained how interest capitalization could increase the total cost.

2. 2noununcountablebusiness

   In accounting, the practice of treating interest paid while building an asset as part of its cost instead of as an expense.

   Grammar: Used mainly in company accounts: interest capitalization on a new factory.

   Patterns

   • interest capitalization on something

   The firm used interest capitalization on the cost of building its new plant.

   Auditors checked the interest capitalization in the annual report.

   Interest capitalization can make profits look higher in the short term.

Common combinations

avoid interest capitalization

Pay what you can now to avoid interest capitalization.

trigger interest capitalization

Leaving school can trigger interest capitalization on the loan.

interest capitalization event

The bank sent a notice about the upcoming interest capitalization event.

after interest capitalization

The balance grew after interest capitalization.

rules on interest capitalization

Check the rules on interest capitalization before you defer payments.

Synonyms and how they differ

compounding

Is the broader idea of interest earning interest, while capitalization is the specific step of adding unpaid interest to the principal.

accrual

Means interest building up, whereas capitalization is what happens when that built-up interest is added to the balance.

Word family

capitalize verb

to add interest to the principal of a loan

capitalized adjective

added to the principal balance

capital noun

money, or the main sum of a loan

interest noun

the cost of borrowing money

Commonly confused: interest capitalization or capitalism?

Practice

Make it your own

Write a sentence using “interest capitalization”, then check it and compare it with the examples above.

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