Nolo's Plain-English Law Dictionary

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Capitalized Interest: 1) Interest on a loan that is added to the principal balance. For example, interest may accrue on a student loan while the debtor is in school, which is then added to the principal on the loan. This results in the debtor having to pay interest on interest. 2) In accounting, interest that is not immediately expensed, but is instead considered an asset and amortized over time.