Additional Interest on Delinquent Amount For the Investor
Overview
You can charge an additional interest as a default interest on the delinquent amount for an investor. The investor earns this additional interest based on his share in the investment.
Note:
- For more information on adding an additional interest component, see Add an Additional Interest Componentsection in theAdditional Interestsection of this guide.
- For more information on charging an additional interest on delinquent amount, see Additional Interest on Delinquent Amount section.
Key Concepts
- Additional Interest is calculated based on the share of the investor in the investment order.
Additional Interest accrued in an Investment Order is calculated as follows:
Additional Interest Accrued = Share % * Unpaid Due Amount * (Number of days for which the loan is delinquent as per Time Counting Method) * Additional Interest Rate defined for the investment order
Example: Charge Additional Interest on Delinquent Amount
Let us look at an example to understand how an additional interest on delinquent amount for the investor works.
Create a Simple Loan Lending Product
Let us say a Simple Loan Lending Product is created with the following details:
| Lending Product Detail | |
| Is Interest Posting Transaction Enabled | True |
| Interest Posting Frequency | Monthly |
| Enable Interest Posting for IO | True |
| Interest Component | |
| Interest Bearing Principal | Delinquent Amount |
| Interest Rate | 5% |
| Interest Posting Frequency | Billing Frequency |
| Time Counting Method | Month and Days |
Create a Contract
Let us create a contract with the following terms and conditions:
| Contract Details | |
| Loan Amount | $20,000 |
| Contract Date | September 19, 2015 |
| Interest Rate | 10% |
| Next Due Date | October 19, 2015 |
| Delinquency Grace Day | 1 |
Add an Investment Order for the Investor
Let us add an Investment Order with the following details:
| Investment Order | |
| Share | 50% |
| Investment Amount | $10,000 |
| Certificate Rate | 10% |
| IO Commitment Amount | $16,000 |
| IO Commitment Percent | 80% |
| Interest Component | |
| Interest Rate | 5% |
| Interest Bearing Principal | Delinquent Amount |
| Time Counting Method | Month and Days |
On the Next Due Date
On the Next Due Date, October 19, 2015:
- Run the IO Interest Accrual Job and IO Interest Posted Job.
- Two IPTs are created as follows:
- Interest Posted for IO = 10,000 * (10/100) * (30/360) = $83.33.
- Interest Posted for Interest Component = 0 as the loan is not yet delinquent.
On the First Day after the Due Date
On the First Day after the Next Due Date, October 20, 2015:
- Bill is not paid.
- Run the IO Interest Accrual Job.
- Interest Accrued in Interest Component of IO = Share * Unpaid bill amount * Additional Interest Rate * one day as per Time Counting Method = (50/100) * 2092.81 * (5/100) * (1/360) = 0.15.