Setting up lease rate card details

You can set up multiple rate card details for a rate card.

Lease products of type Loan must use Loan rate cards to customize payment schedule generation for lease applications, such as provide rounding and holiday support, and allow selection of repayment procedure. The interest rate you provide in the 'Loan' pricing method in the rate card detail is considered as the yield for the lease application.

Perform the following steps to configure the Rate Card Detail Setup for a lease rate card.

Select New Rate Card Setup Detail link that appears below the list of existing rate cards.
Alternatively, scroll down and select on the New Rate Card Setup Detail button. The Rate Card Detail Setup page is displayed.
Configure the Rate Card Detail Setup for a Lease:
1. Select the Residual Type. This can be Fair Market Value or Term Residual.
2. Specify the Residual (%). This is applicable only if you selected Fair Market Value as the residual type.
3. Specify the Residual Term.
  Only if the Residual Type is Term Residual, Residual Term would be applicable.
4. Specify the Minimum Financed Amount that defines the starting value of the financed amount range for which the rate will apply.
  If the actual financed amount is lesser than the minimum financed Amount, pricing options will not be generated.
5. Specify the Maximum Financed Amount that defines the ending value of the financed amount range for which the rate will apply.
6. Specify the Term of the lease in months.
7. Select the required Payment Frequency.
8. Select the Arrears check box to indicate if the payments are made at the end of the payment period rather than the start.
9. Select the required Days Convention.
10. Select on the search icon to select the Credit Grade. The credit grade of the applicant may be used to decide the finance amount, payment term and interest rate. For example, you may extend a higher finance amount at lower interest rate if a borrower has a credit grade of A versus if the borrower has a credit grade of D.
11. Specify the minimum and maximum term of the lease in the Min Term and Max Term fields.
  You need to specify a term in order to calculate the yield and residual amount. However, you can specify the minimum and maximum term of the lease in addition to the term. The lease term range takes precedence over the Term. This means that the rate card applies for the entire range of the term.
12. Select the Use Additional Determining Factors check box if you wan to define additional factors for evaluating the rates.
13. In the Financials section:
1. 1. Specify the Rate Factor. A rate factor is defined for each variation to determine the monthly rental payment on the financed amount. This is based on the minimum payment amount per period to earn a positive yield on the lease.
  2. Specify the Rate Factor Based on Amount. This is the amount based on which the rate factor is derived.
  3. Select Calculate Payments. The following amounts are generated:

- - Residual Amount
  - Yield%
  - Total Payments
  - Payment Amount Per Period

Example

The example below explains the calculation of Financial field values for a Lease Rate Card.

Let us define a rate card for the Lease product with a maximum financed amount of 1 Lakh. Refer to the image below for the values set up in the rate card:

Suppose the current value of the new equipment is 100,000. After the lease term of 12 months, the value of the equipment may reduce to approx 10,000.

This means the equipment will depreciates by 90,000 over the lease term. Based on your projection of the residual amount and the payments made by the lessee, the yield is calculated.

Let us define a rate factor of 8% on the financed amount of 1 Lakh and calculate the payments. You get a yield of 22.29% on your investment, through the total payments of 96K by the lessee and a residual value of 16K on the equipment.

Alternatively, you can decide the yield you want and derive the fate factor to achieve that yield %. However, you cannot define a rate factor where the residual amount becomes equal to or more than the Rate Factor Based on Amount. For example, if you increase rate factor to 0.50, the residual amount becomes 1 Lakh and yield is 1309%. You can calculate the payments, but the system does not allow you to save this rate card. You get the following error:

Field reference

Field Name	Description
Residual Type	The method by which the value of the leased asset is calculated for determining the pricing. Fair Market Value is the price that a given property or asset would fetch in the marketplace. Term Residual is the expected market value at the end of lease term, based on use, wear and tear, depreciation, technology innovation and similar factors. This is expressed as a factor of the periodic payment amount. For example, 1, 2 terms. This is a mandatory field.
Residual %	The projected residual value of an equipment or asset at the end of the lease term. This is applicable if residual type is Fair Market Value.
Residual Term	The number of terms in which the lessee can pay up the residual amount and purchase the equipment or vehicle. This is applicable if the residual type is Term Residual.
Minimum Financed Amount	The minimum finance amount to which this rate card applies. You can define rate cards based on the financed amount range. This is a mandatory field.
Maximum Financed Amount	The maximum finance amount to which this rate card applies. This is a mandatory field.
Term	The number of months for which the finance is extended. This is in months. For example, a 12 month lease, or a 24 months loan. This is a mandatory field.
Payment Frequency	The repayment frequency. For example, Monthly or Quarterly. This is a mandatory field.
Arrears	Indicates whether the lessee makes the repayment at the end of each payment period instead of the start of the payment period. If selected, this reduces the yield.
Days Convention	The method that is selected for calculation of interest. This is a mandatory field.
Credit Grade	The credit grade of the applicant.
Min Term	The minimum duration or lease term to which you can apply this rate card.
Max Term	The maximum duration or lease term to which you can apply this rate card.
Use Additional Determining Factors	Indicates whether additional factors beyond the details provided during rate card configuration are used to generate the pricing.
Rate Factor	The factor applied to the financed amount to calculate the payments. This is a mandatory field.
Rate Factor Based on Amount	The amount on which the factor is applied. You can create multiple rate card details by defining the rate factor on different amounts and calculate various payment and yield options. This is a mandatory field.
Residual Amount	The residual value of the equipment at the end of the lease term. Depending on the type of lease, a lessee can pay up the residual amount and purchase the equipment at the end of the lease.
Payment Amount Per Period	The repayment amount for the lease.
Total Payments	The sum total of the payments expected to be received based on the rate factor or interest rate.
Yield %	The expected return for the lessor on the financed amount, based on the rate factor or interest rate.
Pricing Method	The method used to price a lease. This can be Rate Factor or Interest Rate.
Rate Factor	The rate factor to be applied on the financed amount to generate the payment amounts.
Interest Rate	The interest rate used to determine the payment amount in case you are not using the rate factor.