NetLoan - Interest Capitalization Overview
Overview
Interest capitalization is the process of adding unpaid accrued interest to the loan principal balance rather than collecting it as cash — sometimes called PIK (paid in kind) because the interest is effectively "paid" by drawing on the loan facility. NetLoan supports interest capitalization through two dedicated payment types and tracks the cumulative capitalized amount through two informational fields on the schedule line. This article explains how capitalization works, what the schedule line fields display, and routes you to the correct step-by-step article for each payment type.
Prerequisites
No prerequisites beyond standard NetLoan access. The individual workflows for recording each payment type have their own prerequisites — see the relevant step-by-step articles below.
Use Cases
Capitalize Accrued Interest
The Capitalize Accrued Interest payment type forces all accumulated accrued interest for the period to be added to the loan principal balance. No cash changes hands — the payment amount is always $0. This applies when a loan's terms allow interest to compound into the balance rather than be collected as a cash payment. The capitalized amount is included in future interest calculations, compounding the borrower's obligation over time.
For instructions on recording a Capitalize Accrued Interest payment, see NetLoan - Record a Capitalize Accrued Interest Payment.
Configuring Capitalization Frequency
The Interest Capitalization Frequency field on the loan record controls when the system treats a schedule line as a capitalization event. Options include Never, Payment Date, Period End, Daily, Quarterly, Semi-Annually, Annually, and All Lines. Each option determines the trigger point — for example, Payment Date capitalizes on recurring payment lines, while Quarterly only capitalizes at calendar quarter ends.
This setting is configured on the loan's Accounting tab while the loan is in pending status. A default can also be set at the loan type level so that new loans of a given type automatically inherit the correct frequency without manual entry on each record.
For full option descriptions and configuration instructions, see NetLoan - Interest Capitalization Frequency.
Decapitalization
The Decapitalization payment type (new in 2026.1.1.0) is a cash payment that pays down accumulated capitalized interest before applying to current period interest or principal. It is typically used when a borrower who had been capitalizing interest resumes making cash payments and needs to clear the accumulated capitalized balance. The allocation order is: accumulated capitalized interest first, then current period interest, then remaining principal.
For instructions on recording a Decapitalization payment, see NetLoan - Record a Decapitalization Payment.
Reading the Schedule Line Capitalization Fields
NetLoan tracks capitalized interest through two informational fields on the NetLoan Schedule Line record. These fields are not displayed on the Installment Schedule sublist by default, but are accessible on each individual schedule line record.
- Capitalized Interest (
custrecord_da_lse_cap_interest): The net change in accumulated capitalized interest for the period. A positive value means interest was capitalized and added to the loan balance that period. A negative value means accumulated capitalized interest was paid down that period (e.g., via a Decapitalization payment). - Accumulated Capitalized Interest (
custrecord_da_lse_accum_cap_interest): A running total of all unpaid capitalized interest currently embedded in the loan principal balance. This balance grows each time interest is capitalized and decreases when a cash payment pays it down.
Considerations
Interest always capitalizes on the final period. Regardless of the Interest Capitalization 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 forces capitalization on that specific 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.
Set the frequency before commencing the loan. The Interest Capitalization Frequency field should be configured before the loan is commenced and before any journal entries are run. Changing it after journal entries have been posted will prevent schedule regeneration.
GL treatment aligns with GAAP. NetLoan does not use a separate GL account for capitalized interest. Both regular and capitalized interest post to the standard interest and principal accounts listed on the selected loan type. The schedule line fields exist solely to provide that breakdown for reporting purposes.
Schedule sublist visibility. The Capitalized Interest and Accumulated Capitalized Interest columns are not shown on the Installment Schedule sublist by default. They can be added via NetLoan - Add Columns to Amortization Schedule Sublists if your team needs them visible inline.
Capitalized interest compounds. Once interest is capitalized, it becomes part of the principal balance and interest accrues on the larger balance going forward. This compounds the borrower's obligation over time.