Create a Simple Loan Contract

Overview

Creating a loan contract includes recording all the parties to the agreement. It also records the key date, and related elements in the agreement that impact interactions between the lender and the borrower. After the details have been recorded, the contract must be reviewed and approved before disbursements and repayments can be made on it.

The amortization schedule generated for the contract displays the compounded interest if Interest Compounding option is selected at the product level. For more information on interest compounding, refer to section  Loan  in the CL Loan Administration Guide. 

Prerequisites

Before creating a loan contract, ensure that the following prerequisites are met:

• The user is assigned to the company.
• A lending product is created with the product type as Loan.
• The lending product is assigned to the company.
• Fees and fee set are defined.

Steps

To create a loan contract, perform the following steps:

1. Log in to your Salesforce account.

2. Click (App Launcher).

3. Click CL Contracts and select New.

   Note:

   If you do not see the New button, then perform the steps provided in the Add the New Button on CL Contract Page in the Lightning View of the CL Loan Administration Guide.

4. From the list of record types, select Loan,and then click Next.

   Select Record Type

   

5. Provide the following details:

   Field Name	Action and Description
   Applicant Type	Select one of the applicant type.
   Contact	If the contract is associated with a contact, then select this check box. Contact is an individual associated with an account. Each contact stores information such as name, address, phone numbers, contact information, and bank accounts. You can create, query, delete, or update any attachment associated with a contact.
   Contact Name	If the preceding check box is selected, then select the Contact Name using this lookup field.
   Account	If the contract is associated with an account, then select this check box. An Account is your organization's customer or partner. Each account stores information such as organization name, address, phone numbers, and more. An account number may be associated with multiple contacts.
   Account Name	If the preceding check box is selected, then select the Account Name using this lookup field.
   Application Information
   Contract Type	Select the type of the contract. The supported contract types are: New: Indicates that the contract is a new contract. Refinance: Indicates that the contract is a refinanced one.
   Purpose	Select the purpose for which the loan is being availed. For example, a borrower may need a loan for an education, and you may have a Student Loan product configured for such needs.  Purpose is recorded for reporting only.
   Product	Select the lending product which is associated with this loan account. When you select a lending product, the related field values are populated.
   Branch	Indicates the branch name of the company associated with the user who is creating this contract, and is autopopulated as per the User-Company assignment done in Servicing Configuration.
   Status	Indicates the status of the application, and is automatically updated. At the time of creation of a contract, status is Partial Application.
   Fee Set	This field is defined in the lending product, and is applied in the contract by default once the product is selected. For more information on defining fees and fee sets, see Defining a Fee and Defining a Fee Set sections in CL Loan Administration Guide.
   Interest Type	This field is defined in the lending product, and is applied in the contract by default once the product is selected. CL Loan has two types of Interest rates, namely: Fixed for the duration of the loan Floating that may change during the lifetime of the loan
   Loan Details
   Loan Amount	Specify the loan amount. This is the maximum amount approved for this borrower’s loan. Interest and repayment schedule are computed on this amount after funding of the loan. The loan amount must fall between the limits specified in the lending product.
   Master Loan	If the contract is created as a child loan for a Master Loan, then select the parent loan in this lookup.
   Interest Rate	Specify the percentage that is charged as interest to the borrower. The default values are fetched from the lending product. For more information on interest rate, see Key concepts of a CL contract.
   Interest Calculation Method	Select the method used for calculation of interest. The interest calculation methods that are supported in CL Loan are: Flat Rate: Flat Rate Calculation Method is a method in which the Interest is computed on the original amount every month. Declining Balance: Declining Balance method is based on the outstanding loan balance. It is the balance of the money that remains in the borrower’s hands as the loan is repaid during the loan term. As the borrower repays installments, the remaining loan balance declines over time. The Interest is then charged only on the loan amount that the borrower still holds. Flexible Repayment: Flexible Repayment is a method in which the interest is calculated on the reduced Principal balance, with the change in the interest rate. For more information on interest calculation method, see Key concepts of a CL contract.
   Repayment Procedure	Select the procedure followed to create the repayment schedule. The options include: Equal Monthly Installments: The installment amount remains constant each month. Equated Principal: The principal amount remains constant each month. The interest is calculated based on the principal outstanding, and over the life cycle of the loan, both the installment amount and the interest amount decreases. This field is not applicable for LOC loans.
   Time Counting Method	Select the method of determining number of days in a year. The supported options are: Month and Days (This option is selected by default.) Actual Days Actual Days (366) Action/360
   Interest Only Period	Specify the period during which only interest is billed, if any. After this period, both the principal and interest are due.
   Interest Only Payment Amt	Specify the amount for interest only period if it is selected. Else, select the Actual Interest Only Payments check box if the payment during the interest only period must be calculated based on actual interest accrued on the contract.
   Balloon Payment	Specify the amount that the borrower wants to pay as a lump sum at the end of the contract. A balloon payment is a heavy payment amount due at the end of a loan repayment schedule. The loans with a larger balloon payment have lower regular repayments over the term of a loan.
   Actual Interest Only Payments	Select this check box if the Actual interest Only period behavior is adopted. This check box is selected by default. If this check box is selected, then it indicates that the payment during the interest only period must be calculated based on actual interest accrued on the contract. For information on the interest only period behaviors, see Defining Org Parameters.
   Interest Rate Change Method	Select the method for regenerating the payment schedule upon an interest rate change. If no value is selected, the payment schedule is not regenerated if there is an interest rate change action on the contract. The following table illustrates the method and its purpose: Select To None Note: This option is selected by default. Change the interest rate for the loan contract without generating a new schedule.  Note: This option is not available for AMZ, Flexible AMZ, and LOC loans. Change Payment Amount Change the interest rate and generate a new schedule keeping the maturity date the same as before. Delinquency status and old bills remain as are. New schedule includes the old schedule till the rate change transaction date, and the new schedule with changed payment amount from the next payment cycle. Keep Same Payment Amount Change the interest rate and generate a new schedule keeping the payment amount unchanged. If current interest rate is higher, the additional dues generated (interest and principal) are adjusted in the last payment by the borrower. If interest rate reduces, the loan closes earlier than the original tenure. Delinquency status and old bills remain as are. New schedule includes the old schedule till rate change transaction date and the new schedule with changed term and maturity date from the next payment cycle. Note: This field is not applicable for LOC loans.
   Minimum Interest Rate	Specify the minimum interest rate that can be charged to the borrower.  The interest rate cannot be charged below this value. This value is defaulted from the product, but you can change it.
   Maximum Interest Rate	Specify the maximum interest rate that can be charged to the borrower.  The interest rate cannot be charged above this value. This value is defaulted from the product, but you can change it.
   Principal Adjustment Reschedule Option	Specify the ability to define the type of reschedule to be followed for principal adjustment.
   Add Fee Amount To Bill	Select this check box to include the fee in the bill amount. When this check box is selected and if Include in Dues check box is selected in the fee, then the system adds charge amounts to the bills, thereby increasing the bill amount. Delinquent amount is the total amount due including fees billed.
   Delinquency Basis	With the Schedule Balance delinquency basis, whenever a borrower is making an extra payment the excess amount goes toward the Excess field and satisfies the fee, interest, and principal remaining if the Payment Application Mode is Current Dues. Here, it is ensured that the loan balance on a particular date is less than or equal to the closing balance of the current schedule to avoid any delinquency on the contract. This is achieved by creating a bill that is required to match the closing balance of the current schedule.
   Flexible Rate
   Holiday Schedule	Specify the Holiday Schedule, if enabled for the lending product. For steps to do this, see Defining a holiday schedule section.
   Step Up Schedule	Optionally, define the Step Up Schedule for borrower payments, if it is defined for the lending product. For steps to do this, see Defining step up schedule for payments section.
   Interest Posting Details
   Is Interest Posting	Select this check box if you want to enable Interest Posting on this contract. It is selected by default if it is enabled in the lending product.
   Interest Posting Frequency	Select the frequency at which the interest posting transaction is created.  Note: For Flexible AMZ loans, this is set to Payment Frequency by default.
   Is Capitalization Enabled	Select this checkbox if you want to enable interest capitalization on this contract. It is selected by default if it is enabled in the lending product. Interest capitalization is a method where the interest is accrued on any unpaid interest. Interest is calculated on the principal amount and on the unpaid interest till date in case of non-payment. It is also termed as Interest on Interest. If the capitalization frequency is higher, the capitalized interest grows.  Note: This is applicable for simple and AMZ loans, but not for Flexible AMZ and LOC loans.
   Compounding Frequency	Select the frequency at which the interest capitalization transaction is created. This frequency is also known as capitalization frequency.
   Enable Interest Posting for IO	Select this checkbox if you want to enable interest posting for Investment Orders. It is selected by default if it is enabled in the lending product.
   Enable Interest Capitalization for IO	Select this check box if you want to enable interest capitalization for Investment Orders. It is selected by default if it is enabled in the lending product.
   Enable Fee Capitalization for IO	Select this check box if you want to enable fee capitalization for Investment Orders. It is selected by default if it is enabled in the lending product.
   Funding Information
   Funding in Tranches	Select the Funding in Tranches check box if, this loan is to be funded in parts and the whole amount is not funded at once. These disbursal stages can vary depending on the loan product and other factors. For more information about funding in tranches, refer to section Funding a loan in tranches. It is selected by default if it is enabled in the lending product. The disbursal of the total loan amount to the borrower in multiple disbursal transactions at different stages is known as funding or disbursing a loan in tranches.
   Expected Disbursal Date	Select the expected date of the loan disbursal. By default this date is set to current system date.
   Payment Information
   Repayment Procedure	Select the procedure to be followed to create the repayment schedule. By default, this procedure is set to Equal Monthly Installments, which means that the installment amount remains constant each month. Note: This field is not applicable for LOC loans.
   Term	Specify the Term during which a loan is intended to last. The term is specified in months. Alternatively, if you are using CL Loan 2.400x, specify the Maturity Date for the contract; the last payment schedule is then created on the maturity date and the system calculates the number of installments based on frequency of payment, first payment date and maturity date. By default, the value of this field is applied from the lending product. Term is the period over which a loan agreement is in force, and before or at the end of which the loan should either be repaid or renegotiated for another term.
   Payment Frequency	Select the frequency at which the borrower must repay the loan amount. You can override this value at the contract level. You can select Daily, Weekly, Bi Weekly, Semi-Monthly, Bi-Monthly, Monthly, Quarterly, Semi Annual, Annual, Single Payment or Semi Monthly PD. For semi-monthly PD, the difference between the first and the second payment dates specified on the CL Contract page must be equal to or greater than four days and less than 31 days. By default the value selected for this field is Monthly. Note: PD means Pay day. In Semi Monthly, we add 15 days to start date and get the next date. But in the Semi Monthly PD, the user will need to give first and second payment date and that will be followed. For example, in Semi Monthly, if first payment date is 1st March, then next payment date is 16th March, and next is 1st April and so on. But in the Semi Monthly PD, if first payment date is 1st March and second payment date is 17th March, then next date will be 1st April and next is 17th April. In Semi Monthly PD, since the user is giving the second date, the difference between the first and second payment date can either be more or less than 15 days.
   Amortization Term	Specify the period during which the borrower makes payment on the loan contract. This value can be a value greater than the term of the loan. You can set the amortization term for a loan to differ from contract dates. This feature is generally used by lenders to make repayment options more affordable for borrowers by amortizing the loan over a longer term with a higher balloon at the end of loan term.The amortization term must always be equal to or lesser than the term of the loan.
   Payment Application Order	Select the way in which the payment is to be applied. Payment Application Order are of two types, namely, Spread and Date. By default, the value of this field is selected as Spread.
   Payment Start Date	Specify the start date of the loan repayments. Generally, the payment start date is the contract start date or funding date + one payment period, and the system defaults the value to this.
   Due Day	Specify the day on which the bills must be due. For example, if Due Day is 5, the bill becomes due on the 5th of the month.
   Maturity Date	Specify the date on which the contract matures. If this is specified instead of the Term, the last payment schedule is created on this date. the system calculates the number of installments based on the frequency of payment, the first payment date and the maturity date.  If you have upgraded to CL Loan 2.400x or later, you must deactivate the validation rule "Number_of_installments_check" defined on the CL Contract object to specify the maturity date. (Setup, Create, Objects, CL Contract, Validation Rules.)
   Reschedule Option On Excess Payment	Select the method by which the loan must be rescheduled if Reschedule Option On Excess Payment is set up for the product. The supported options are: Change Payment Amount Keep Same Payment Amount
   Enable Forecasting	Select this checkbox to enable forecasting on the contract.
   Flexible Repayment Plan
   Add	Specify the Flexible Repayment Plan. You can do this for Flexible and Equal Monthly Installment repayment methods. For steps to do this, see Defining flexible repayment plan section. Click Add to add a flexible repayment plan to the contract. When you click Add, specify the following fields.
   PAYMENT TYPE	Specify the type of payment that must be used while paying in a flexible repayment plan.
   PAYMENT AMOUNT	Specify the amount that must be paid in the flexible repayment plan.
   NUMBER OF PAYMENTS	Specify the number of preceding payments that must be made.
   PAYMENT START DATE	Specify the date at which the payments must start. The default value of this is contract start date or funding date + one payment period.
   ADVANCE INTEREST	Select this check box if the interest for this payment must be charged in advance.
   Minimum Amount Due - Details
   Minimum Amount Due Type	Select the minimum amount due as a Fixed Amount or a Percent of the bill amount. By default, the system selects the value as Percent. The maximum value considered for Percent type is 100. This means that if a user specifies the minimum amount due as 200, but specifies the due type as %, then CL Loan considers this to be 100% and not 200%. If a user specifies the minimum amount due, but leaves the due Type field blank, the system assumes it to be Percent. This field is not applicable to Flexible AMZ loans.
   Minimum Amount Due	Select the fixed amount or percentage of the bill amount that a borrower must pay to avoid late charges on a payment. You can override the value specified at the loan product level, if any. This field is available in CL Loan version 2.2003 and later. For ongoing contracts created on earlier CL Loan versions, the existing CL Loan behavior applies, whereby, a borrower is not charged a late fee if even 1 cent is received towards a bill. Lenders need to add these fields to the definition of the loan product, to be able to apply this behavior to new contracts and to existing contracts for the remaining payments. Example: Loan Amount = 10000 Due Amount = 500, Payment Amount = 90, Due Date = January 31, Current System Date = February 1, Grace Period = 0. Case 1: Payment Amount = 90, Minimum Amount Due = 100, Minimum Amount Due Type = Fixed Amount, Payment Date = January 31. Payment amount received (90) is less than the defined minimum due amount (100). Therefore, when the grace period is over, that is, on February 1, a late charge is created provided late fee is included in the fee set attached to the contract. Case 2: Payment Amount = 300, Minimum Amount Due = 50, Minimum Amount Due Type = Percent, Payment Date = January 31. Payment amount received (300) is more than the minimum amount due (50% of due amount = 250). Therefore, when the grace period is over, that is, on February 1, no late charge is created. This field is not applicable to Flexible AMZ loans.
   Delinquent Dues	The values are displayed for the fields in this section if a contract becomes delinquent.
   Days Past Due	The number of days for which there has been an overdue on the loan account.
   Amount to Current	The current due amount on the loan account. This includes delinquent amount, plus any unpaid fees on the loan account.
   Status	Status of the contract. For example, Active-Good Standing, Active-Bad Standing, Closed-Obligations Met.
   Aging	This is the number of days since which the loan has been delinquent. It is represented in terms of different categories defined in CL Loan. 0-days 1-30 days 31-60 days 61-90 days 91-120 days 121-180 days 180+ days If you have specified delinquency grace days, delinquency aging is calculated only after the grace days are over. For example, if payment is due on Jan 10 and delinquency grace days are 5, the delinquency aging is calculated starting Jan 16 if payment is not received yet.
   Delinquent Amount	The total overdue amount on the loan account.
   Total Due Charges	The total unpaid fees on the loan account.
   Grace period and Pre bill days
   Late Charge Grace Days	Specify the number of days the system must wait before charging the penalty on any payment that is over due. If the borrower makes a payment within these days after the payment due date is crossed, late charge is not applied. In case of Flexible AMZ loans, in addition to the late payment charge, interest is calculated on the delinquent amount, based on the Interest on Arrears (IOA) setup.  For information on interest on arrears, refer to section Interest on Arrears.
   Pre Bill Days	Specify the number of days for the bill to be generated before the actual installment date. For example, the installment date 10th of every month and the prebill days are entered as 5. As per the prebill days the bill gets generated before 5 days of the actual installment date which is on 5th of every month.
   	Note: Payment tolerance and grace periods define the limits for days and amounts, short payments, delinquency and payoffs.  Payment tolerance rate defines the maximum % of the payment amount that the lender is willing to accept as unpaid without marking the loan delinquent. A borrower can avail the payment tolerance option for payments falling within the payment tolerance start and end dates. You can set up payment tolerance period multiple times on a contract on the borrower's request. For example, Payment Tolerance Start Date : Apr 1, 2016 Payment Tolerance End Date : Jul 1, 2016 Payment Tolerance Rate : 2 Between the two dates defined there are three bills that are due: Apr 15 - 100 due May 15 - 100 due Jun 15 - 100 due Even if the customer pays only 98 each time, the bills are marked as satisfied. On July 15, however, the borrower must pay the required 100, else the loan becomes delinquent. Delinquency Grace Days are the number of days the system waits before categorizing the account as a delinquent account and changing the status to Active-Bad Standing in case of non payment of dues. Delinquency grace days may be the same as or more than the late charge grace days. Late Charge Grace Days and Delinquency Grace Days apply to payments within the payment tolerance period also.
   Payment Tolerance Start Date	The start date of the payment tolerance period to be applied on the loan account.
   Payment Tolerance End Date	The end date of the payment tolerance to be applied on the loan account.
   Payment Tolerance Rate	The maximum percentage of the payment amount the system allows to be unpaid, while not marking the contract delinquent.  For example, if payment tolerance rate is 10% of the payment amount, the borrower can pay only 90% of the payment amount, and avoid the contract being marked as delinquent. The outstanding amount that is generated due to the short payments during the payment tolerance period is settled through a balloon payment at the end of the contract.
   Late Charge Grace Days	The number of days for which the system waits for a payment before applying a late charge on the loan account. The contract status remains Active-Good Standing during this time. For example, if a payment is due on March 1, and Late Charge Grace Days are 4, then a late charge is applied if payment is not received by March 5. The system includes or excludes holidays and non-working days from the grace days calculation, based on the setting of the org parameter Skip Holidays For Late Charge Grace Days.
   Payment Due Days	The number of days from the installment date that a payment becomes due. For LOC contracts, this indicates the number of days from the bill generation date. For the same lending product or contract, you can specify either Pre Bill Days or  Payment Due Days, or none. The value specified for the contract overrides the product level value.
   Delinquency Grace Days	Specify the number of days the system must wait before categorizing the account as a delinquent account if payment is not received. Late charge, however, is applied for the days beyond the Late Charge Grace Days in such a case. Usually, delinquency grace days are equal to or more than the late charge grace days.
   Payoff Tolerance Amount	Select the maximum amount that the system can allow to remain unpaid while paying off a delinquent loan.
   Additional Parameters
   Advance Interest	Select this check box if you want the interest to be calculated and charged in advance.
   Apply Payments On Deposit	Select this check box if you want the payments to be applied to the deposit amount. Note: This flag regulates whether normal payment transactions should be applied to the loan in the order ofspread,or they should go to the Deposit.
   Auto Change Deposit Rate	Select this check box if you want to enable the automatic change in the deposit interest rate as the loan interest rate is changed or reversed.
   Business Hours	Select the Business Hours to apply the business holidays on the contract. If none is selected, then the contract assumes the Business Hours defined at the product level. If Business Hours are not defined at product level, then the contract assumes the default Business Hours. Note: This field is visible only when the Business Hours On Contract flag is enabled in the Setup > Custom Settings > Enable Loan Features.
   Collect Advance Interest On Disbursal	Select this check box if you want to collect the interest in advance by deducting it from the amount to be disbursed. For more information, see Additional Interest in Advance
   Enable Forecasting	Select this check box to enable forecasting on the contract.
   Minimum Interest Option	Select the options to set Minimum Interest Type that has to be received as interest portion.  The options are: Minimum Interest Amount Minimum Interest Period
   Minimum Interest Amount	Specify the minimum interest amount that has to be received as an interest portion.
   Minimum Interest Period (In Days)	Specify the minimum interest period in days up to which the interest calculated should be received as interest portion.
   Minimum Interest Period (Date)	Specify the minimum interest period date up to which the interest calculated should be received as interest portion.
   Manual Loan Closure	Select this checkbox if you want the loan to be closed manually only.
   Skip Amortization Schedule Generation	Select this checkbox if the amortization schedule is not to be generated.
   Protect Block
   Protect Enabled	This check box by default takes the value from the product, and indicates if loans for this lending product offer protection in the form of loan waiver to borrowers in case of their inability to pay back. For information on protect enabled loans, see Protect Enabled Loans and Defining the Protect Fee Split sections in the CL Loan Administration Guide.
   Protect Type	Indicates whether Full or Partial protection can be claimed by borrowers.
   Ignore Waiver for Rebate	Indicates whether any waivers claimed by the borrower must be ignored and a rebate must be offered to the borrower.
   Protect Fee Percent	The percentage of the loan amount that the borrower must pay as fee to enable protect on the loan.
   Protect Waiver Type	The components that must be waived off if a protect is claimed. This must be Principal and Interest.
   Accounting Information
   	Select the required accounts for recording accounting entries for different loan scenarios.
   Loss Provisioning Set	Select the Loss Provisioning Set to define the aging buckets to be considered for loss provision accounting. This is the same as the delinquency sets that you created. You can use either the default or a custom delinquency set. Loan loss provisioning set can be different from the Delinquency Set attached to the contract.

6. Click Save.The contract is created, and additional information sections are added to the contract Details tab. Additional tabs and buttons are provided where you can either record further contract related actions or view updates to a contract through its life cycle.

7. In the Delinquent Dues section, in the Status field, select Approved.In CL Loan every loan application needs to go through an approval process. The approver, ideally a member of the credit committee checks the loan application details and approves or rejects the application along with his comments. You will receive a request to approve the loan application only if it is forwarded to you for approval and also, if you have the rights to sanction the loan.For more information on approving a CL contract, see Approving a CL contract section.

8. Click Save.