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Loan Capitalization Calculator

Formula

To calculate the total loan amount after capitalization:

$TL = P \times (1 + r)^n$

Where:

$TL$ is the Total Loan Amount After Capitalization (\$)
$P$ is the Principal Amount (\$)
$r$ is the Annual Interest Rate (as a decimal)
$n$ is the Capitalization Period (years)

What is Loan Capitalization?

Loan capitalization is the process of adding unpaid interest to the principal balance of a loan. This typically occurs when the borrower is not making interest payments during a deferment or forbearance period. As a result, the interest is capitalized, and the total loan amount increases, which can significantly affect the cost of the loan over time.

Example Calculation 1

Let's assume the following values:

Principal Amount ( $P$ ) = \$10,000
Annual Interest Rate ( $r$ ) = 5% (0.05 as a decimal)
Capitalization Period ( $n$ ) = 3 years

Using the formula:

$TL = 10000 \times (1 + 0.05)^3 = \$11,576.25$

The Total Loan Amount After Capitalization is \$11,576.25.

Example Calculation 2

Let's assume the following values:

Principal Amount ( $P$ ) = \$5,000
Annual Interest Rate ( $r$ ) = 7% (0.07 as a decimal)
Capitalization Period ( $n$ ) = 2 years

Using the formula:

$TL = 5000 \times (1 + 0.07)^2 = \$5,749.50$

The Total Loan Amount After Capitalization is \$5,749.50.