NetLoan - Interest Capitalization Frequency

Overview

The Interest Capitalization Frequency field controls when accrued interest is added to the principal balance of a loan. Depending on the option selected, interest may be folded into the loan balance on every payment date, at calendar period-end dates, daily using a compound formula, or never. This setting directly shapes how the amortization schedule calculates and allocates interest across each period.

Prerequisites

• Standard NetLoan access with permission to edit loan records
• The loan record must be in pending status before this field can be configured

Step-by-Step

Navigation

• Loan record: Open the loan record → click the Accounting tab → locate the Interest Capitalization Frequency field

Setting the field

1. Open the loan record in edit mode and make sure it is in pending status.
2. Click the Accounting tab.
3. Select the appropriate option from the Interest Capitalization Frequency dropdown. See the option descriptions below.
4. Save the record.

Option Descriptions

Never: Interest is calculated each period but is never added to the principal balance. It accumulates as accrued interest on each schedule line. Use this when the loan structure requires interest to remain separate from principal and to be paid down through payments rather than compounded into the balance.

Period End: Interest is capitalized on every accounting period-end schedule line. Interest is added to the principal at the close of each accounting period, regardless of when payments occur. Use this when capitalization should happen at consistent calendar intervals tied to accounting periods.

Payment Date: (default if field is left blank) Interest is capitalized on the recurring payment date — specifically, on schedule lines where the amortization type is Payment. This is the most common setting for standard amortizing loans. Important limitations:

• Does not capitalize on one-time payments, non-loan payments, or adjustment payment types (adjustment modifications, adjustment payments, adjustment fees).
• If the recurring payment amount is $0, interest will still capitalize as long as an actual $0 payment record exists for that date.

Daily: Uses a discrete compound interest formula to calculate interest for each schedule period:

Interest = Balance × (1 + (Period Rate ÷ Days in Period))^(Days in Period) − Balance

Where Days in Period is the actual number of calendar days in the schedule period, and Period Rate is derived from the APR and the Day Count Convention. Capitalizes on every schedule line. Despite the name, "Daily" does not produce one schedule line per day — the schedule still generates one line per period, but uses daily compounding math to calculate the interest amount within that period. Use this for loans that specify compound interest.

Quarterly: Capitalizes at calendar quarter ends: March 31, June 30, September 30, and December 31. Between those dates, interest accumulates as accrued interest on each schedule line. Dates are calendar-year based, not loan-start-date based. If a payment falls on a quarter-end date, capitalization still occurs as long as the payment does not fully pay off all outstanding interest.

Semi-Annually: Capitalizes at June 30 and December 31. Behaves the same as Quarterly but only twice per year. Calendar-year based.

Annually: Capitalizes at December 31 only. Interest accrues for the full calendar year and is added to the principal balance at year end.

All Lines: Capitalizes on every schedule line using the standard simple interest formula — not compound. This produces the same capitalization frequency as Daily (every line), but uses simple interest math rather than daily compounding. Use this when interest should be folded into the principal each period without compound interest behavior.

Considerations

Interest is always capitalized in the final period: Regardless of the frequency setting, interest is always capitalized on the final schedule line of the loan. This ensures the loan closes with a clean balance.

The "Capitalize Accrued Interest" payment type overrides the frequency setting: Adding a Capitalize Accrued Interest payment to a loan forces capitalization on that date regardless of what the Interest Capitalization Frequency is set to. This is useful for one-off capitalizations without changing the loan's overall frequency setting.

Adjust Principal Balance payment types never trigger capitalization: Adjust Principal Balance payment types do not trigger interest capitalization, regardless of the frequency setting. This prevents balance distortions from internal schedule adjustments.

Set this field before commencing the loan: The Interest Capitalization Frequency should be configured before the loan is commenced and before any journal entries are run. You will not be able to change it after the loan is commenced. This is a current limitation of this setting.

Setting the default at the loan type level: The Default Interest Capitalization Frequency field on the loan type record controls what value is applied to new loans of that type. Configuring this at the loan type level ensures consistency and reduces the need to set it manually on each loan.

Daily vs. All Lines: Both Daily and All Lines capitalize interest on every schedule line, but they use different interest calculation methods. Daily uses a compound formula where each day within the period is treated as a compounding interval, resulting in a higher interest amount than simple interest over the same period. All Lines uses the standard simple interest formula. Choose Daily for loans that contractually specify compound interest; use All Lines when every-period capitalization is needed without compounding.

Related Articles

• NetLoan - Interest Capitalization Overview
• NetLoan - Record a Capitalize Accrued Interest Payment
• NetLoan - Record a Decapitalization Payment
• NetLoan — Create a New Loan Record

Record Structure

Loan Record — Accounting Tab

Loan Type Record

Schedule Line