Interest Capitalization

Capitalization adds unpaid interest to the principal balance of a loan. If you do not pay interest as it accrues during periods of non-payment (such as while you are in school, in a grace period, in deferment or in forbearance), your lender may capitalize the interest. Capitalization increases the outstanding principal amount due on loan and may cause your monthly payment amounts to go up. Interest is then charged on the higher balance, increasing the overall cost of the loan.

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