Behavior of Pre-Paid Fees in Master Loans

Overview

• With the Oxygen release, the following two new fields have been added to the pre-paid fee:

  • Application Type: This consists of the following two values:

    • First Disbursement: This application type implies that the pre-paid fees can only be collected once during the first disbursal of the first child loan.

    • All Disbursement: This application type implies that the pre-paid fees can only be collected once during any disbursal of the child loans.

  • Available Amount To Charge: The Available Amount To Charge in the parent master facility loan pre-paid fees indicates the pre-paid fee amount available for collection in the child loan.

• Pre-paid fees can be defined at the parent master facility loan with any of the Application Types (First Disbursement or All Disbursements).

  Note:

  For the First Disbursement application type, Apply On Every Disbursal is not applicable.

• A pre-paid fee is defined in a parent master facility loan and is collected in a child loan. While creating the child loan, the pre-paid fee is crated with a zero amount by default.

• A portion of the pre-paid fee can be collected at the disbursement of each child loan and can be collected at the disbursement of the first child or at all disbursements, but the priority is the first disbursement for the Oxygen release.

• At the time of disbursement of a child loan, the pre-paid fee amount is populated in that child loan contract.

UI Enhancements

This section lists the user interface enhancements made in various releases.

Apply Pre-Paid Fees in a Master Facility

Let us understand how pre-paid fees are applied in a Master Facility.

To apply pre-paid fees in a master loan:

1. Define a new fee set where Time of Charge is Pre-paid Fees.

   Note:

   For more information on defining a new fee set, see Define a Fee Set.

2. While creating a Master Facility product, add the preceding fee set defining the Application Type and selecting Apply On as None.

3. While creating a parent Master Facility contract, add the preceding pre-paid fees.

   Note:

   The Available Amount To Charge is populated with the amount that is as defined in the Master Facility product.

   For example, if the pre-paid fee set is defined as 10% of the loan amount, then the parent Master Facility contract updates the value of Available Amount To Charge as $1000 if the loan amount is $10,000.

4. While creating a loan product for the child loan, add the preceding fee set.

5. Create a child loan contract of the preceding parent loan.

   The prepaid fee is deducted while disbursing the loan amount and the disbursed amount is (loan amount - pre-paid fee).

   The Remaining Amount for Funding and Amount Funded is then updated on the parent master facility loan.

   The Available Amount To Charge is updated on the pre-paid fee of the parent master facility loan.

Example

Let us understand the behavior of the pre-paid fee in detail by performing the following steps:

1. Define a New Pre-Paid Fee.

2. Define a New Pre-Paid Fee Set and Link it with Pre-Paid Fee.

3. Create Master Facility Product with the new Pre-Paid Fee Set Defined.

4. Add a New Product Pre-Paid Fee to the Master Loan Lending Product.

5. Create a Parent Master Facility Loan Contract.

6. Create a Simple Loan Lending Product With Pre-Paid Fee Set and the Product Pre-Paid Fees.

7. Create Child Loans.

8. Disburse the Child Loans.

Define a New Pre-Paid Fee

Let us say we define a new pre-paid fee as follows:

New Pre-Paid Fee Defined

Define a New Pre-Paid Fee Set and Link it with Pre-Paid Fee

Let us create a new pre-paid fee set with the preceding pre-paid fee and link them.

New Pre-Paid Fee Set with Pre-Paid Fee

Create a Master Facility Product with the new Pre-Paid Fee Set Defined

Let us create a Master Facility lending product with the new pre-paid fee set defined.

Master Loan Lending Product with Pre-Paid Fee Set

Add a New Product Pre-Paid Fee to the Master Loan Lending Product

In the Related Section, let us add the new product pre-paid fee with the following details:

Add a New Product Pre-Paid

Create a Parent Master Facility Loan Contract

Let us create a parent Master Facility loan contract with zero disbursement. 

Parent Master Facility Loan Contract

The Available Amount To Charge in the pre-paid fee of the parent master facility loan gets updated to $1,000.

This is because the pre-paid fee was defined to be as 10% of the loan amount, which is 10% of $10,000 that is $1,000.

Pre-Paid Fee on Parent Master Facility Loan

Create a Simple Loan Lending Product With Pre-Paid Fee Set and the Product Pre-Paid Fees

Let us create a simple loan lending product with the following details:

Simple Loan Lending Product

Create Child Loans

Let us create two child loans as follows:

Disburse Child Loan

When the child loan is disbursed, the pre-paid fee is deducted from the amount to be disbursed, and then the remaining amount is disbursed to the borrower.

Because the pre-paid fee for the Child Loan 1 is calculated as $500 (10% of 5000), the Amount Funded = $5,000 - $500 = $4500.

Child Loan 1 Disbursal

After the disbursal of Child Loan 1, the following are affected:

• Child Loan 1

• Parent Master Facility loan

• Pre-paid fee on the parent master facility loan

Child Loan 1

Amount Funded = Transaction Amount - Pre-Paid Fee amount = $5,000 - (10% of loan amount) = $5,000 - (10% of $5,000) = $5,000 - $500 = $4,500. 

Child Loan 1

Parent Master Facility Loan Contract

In the parent master facility loan contract, the Remaining Amount For Funding = $10,000 - Amount Funded = $10,000 - $4,500 = $5,500.

Master Loan

Pre-Paid Fee of the Parent Master Facility Loan

In the pre-paid fee of the parent master facility loan, the Available Amount To Charge = (Pre-paid fee of the parent master facility loan) - (pre-paid fee charged in the Child Loan 1) = (10% of parent master facility loan amount) - (10% of Child Loan 1 loan amount) = (10% of $10,000) - (10% of $5,000) = $1,000 - $500 = $500. 

Pre-Paid Fee on Master Loan

Similarly, when Child Loan 2 is disbursed, the calculations are as follows:

• Amount Funded of Child Loan 2 = Transaction Amount - Pre-Paid Fee amount = $2,000 - (10% of loan amount) = $2,000 - (10% of $2,000) = $2,000 - $200 = $1,800. 

• In the parent master facility loan contract:

  • Remaining Amount For Funding = $5,500 - Amount Funded in Child Loan 2 = $5,500 - $1,800 = $3,700.

  • Amount Funded = Amount Funded in Child Loan 1 + Amount Funded in Child Loan 2 = $4,500 + $1,800 = $6,300.

    Master Loan After Disbursal of Child Loan 2

    

• In the pre-paid fee of the parent master facility loan, the Available Amount To Charge = (Pre-paid fee of the parent master facility loan) - (pre-paid fee charged in the Child Loan 1 + pre-paid fee charged in the Child Loan 2) = (10% of parent master facility loan amount) - (10% of Child Loan 1 loan amount + 10% of Child Loan 2 loan amount) = (10% of $10,000) - (10% of $5,000 + 10% of $2,000) = $1,000 - ($500 + $200) = $1,000 - $700 = $300. 

  Pre-Paid Fee on Master Facility Loan After Disbursal of Child Loan 2