Capitalization

Capitalization happens when accrued but unpaid interest gets rolled into the principal of a loan. From that point on, interest is charged on the larger balance — you are paying interest on interest.

It is most familiar from student loans, where interest accrues during school, grace periods, deferment, or forbearance and is capitalized when repayment begins. It also occurs on negatively amortizing loans, where the required payment does not cover the interest due.

The effect compounds quietly. A borrower who defers payments to reduce short-term strain can emerge with a materially larger balance and a higher lifetime cost, even though the interest rate never changed.

In a separate corporate-finance sense, "market capitalization" means a company's share price times its shares outstanding — an unrelated use of the same word.