What Increases Your Total Loan Balance?

Has your total loan balance increased, but you’re not sure why? There are 3 primary reasons why this could happen. Check out our guide below to find out the most common reasons

Updated February 2024

Fact checked by Cathy Gresham

What Increases Your Total Loan Balance?

Loans can be a great financial tool. Taking out a loan can help pay for a large asset, such as purchasing a car.

Of course, you generally have to pay for this benefit in the form of interest. And, if you’re not careful, you can end up paying a lot more than the original purchase price of the asset, through things like interest payments and late fees.

To help you keep costs low, this guide explores the factors that increase your loan balance, such as late payments. So without further ado, let’s dive into some of these factors!

What increases your total loan balance?

3 main factors can increase your loan balance, namely:

1. Capitalized interest

2. Fees (such as for late payments)

3. Additional principal

1. Capitalized interest

If you don’t pay the interest owed for a period of the loan, that interest amount can (and usually will) be rolled into the overall loan balance (principal) you owe. Confused? Check the streamlined example below:

Let’s do a super simple, stylized example. Say you have a loan balance of $10K. Your monthly payment consists of $250. This month, of that $250, let’s say $200 is the principal paydown and $50 is interest. If you don’t make a payment, your total loan balance will go up by $50. So your next month’s payment will be calculated based on a new loan balance (principal amount) of $10,050 – since you didn’t pay down any principal amount and the interest you didn’t pay is added to the principal (this is known as being capitalized).

If you miss a payment, you can likely expect additional penalties and fees to be assessed. In some loans however, like an SBLOC or other types of lines of credit, payback timing is flexible, so while you may be incurring capitalized interest, there won’t necessarily be penalties associated.

2. Fees, charges, and penalties 

If you have not complied with the loan terms, your financial institution may have added a fee to your loan and rolled it into your total loan balance.

For most consumers, this might be a late payment fee or a prepayment penalty. Although you should check your loan documents carefully, as there could be many provisions to be complied with. 

For more complicated and/or commercial loans, there might be fees associated with breach loan covenenants, for example. 

Deferred Payments

3. Additional principle

Your loan balance may have gone up because you withdrew additional funds, thus increasing the loan’s principal amount to be repaid. 

Other less common situations

Human Errors

Despite most calculations being done by computers, human errors can and still do occur in financing. Lenders can make manual errors when inputting or updating your loan details. If this happens, you may find that your total loan balance has seemingly increased for no reason. If you believe that this could be the reason why your loan balance has increased, you should carefully check your loan documents. 

Small differences between what you think you owe and what your financial institution is showing, may not be the result of an error, though. More likely, you’re calculating the loan balance slightly differently, and with the compounding effect in loans, those small differences add up over time. 


Final Thoughts

As you can see, multiple factors can hike up your total loan balance.

If you have taken out a loan, it’s important to bear these factors in mind. 

Editor's Note:

At Personal Finance Guru, we want to help you maximize your lifestyle through personal finance. You can trust the integrity of our independent financial advice. Our opinions our own and have not been provided, review, approved, or endorsed by any advertiser or financial product provider. To support and grow the site, however, we may receive compensation from the issuers of some products.

Author bio:

Cody Beecham

Cody Beecham


Cody is the founder and owner of Personal Finance Guru. His day job is as a management consultant at one of the Top 3 firms (think Mckinsey, Bain), where he advises Fortune 500 C-suite clients on their most important and pressing business problems. He completed his business education at Harvard Business School. 

After seeing the lack of personal finance education for regular people, Cody started the website with the mission to provide everyone access to information that will help them achieve their financial goals.

Cody approaches personal finance from a maximalist perspective, shunning typical advice around simply not buying a cup of coffee instead of more effective methods like investing in yourself to quickly grow your income. 

He believes in saving money and investing for the future, but he also knows that you need to enjoy life today. That’s why Cody approaches money with a sense of humor and a positive attitude. He knows that if you’re not having fun while you’re growing your wealth, then what’s the point?

Cody approaches life with the same gusto that he brings to personal finance. He loves to travel and experience new cultures, and he is an avid reader and learner. He also enjoys playing sports (especially tennis) and spending time with his family and friends.