Manual Interest Adjustment

Overview

Aside from the ability to alter the principal amount using Principal Adjustment, Q2 Loan Servicing can also allow you to alter the interest amounts using the Manual Interest Adjustment. An interest amount correction can be made using the manual interest adjustment.

How do you manually adjust the interest?

Prerequisites

For the system to be able to allow you to adjust the interest manually, ensure that you enable the following flags while creating the Lending Product as highlighted in the following image:

Create Summaries
Enable Adjustment Entry

Steps

Log in to your Salesforce account.
Click CL Contracts.
Select the required CL Contract ID.
Go to Loan Quick Menu > Loan Actions > Manual Interest Adjustment.

Provide the values as described in the following table:

Note: You can refer to the image following this table as an example.

Field Name

Action

Transaction Date

Enter the date on which you want to manually adjust the interest. This date cannot go before LAD. It can be any date after the LAD date.

Note:Currently, the system only considers the current system date as the Transaction Date even if you enter another date. In future, this field may be used for backdated purposes.

Adjusted Interest Capitalized

Enter the portion of interest that needs to be adjusted till the capitalized date (IPT date).

Adjusted Interest Non-Capitalized

Enter the portion of interest that needs to be adjusted from the capitalization date (or IPT) till the LAD.

In other words, it is the non-capitalized interest adjustment as of LAD.

Click Save.

Key Concepts

For a capitalized loan, the system displays both the fields, Adjusted Interest Capitalized and Adjusted Interest Non-Capitalized. But, for a non-capitalized loan or for a non-IPT loan, the system displays only Adjusted Interest Non-Capitalized.
A capitalized loan will always be IPT-enabled loan. But a non-capitalized loan can be an IPT-enabled loan or a non IPT loan.
For a non-capitalized loan, you must enter only one interest adjustment amount, which is Adjusted Interest Non-Capitalized.
For a capitalized loan, two values need to be entered:
- Adjusted Interest Capitalized: This is a portion of the interest that needs to be adjusted till the capitalized date or the IPT date.
- Adjusted Interest Non-Capitalized: This is a portion of the interest that needs to be adjusted from the capitalization date (or IPT date) till the LAD.
Transaction Date is captured as per the current system date. But you can change the date till LAD and not before that. However, currently, the system only considers the current system date even if you enter another date.
When an interest adjustment transaction occurs in the system, an OLT gets created of the type Adjusted Interest, and you cannot reverse this OLT.
For a non-IPT loan, the provided interest adjustment value is adjusted in Interest Remaining only.

Validation Messages

The system displays the validation messages when it counters the corresponding conditions as explained in the following table:

If...	Then the system displays the following Error Message...
If a non-capitalized loan has either one of the following field values: Adjusted Interest Non-Capitalized = null Adjusted Interest Non-Capitalized = 0	Value of adjusted interest cannot be 0 or null for non-capitalized loans.
If a capitalized loan has either null or 0 values for both Adjusted Interest Non-Capitalized and Adjusted Interest Capitalized fields	Value of both adjusted interest cap and non-cap cannot be 0 or null for capitalized loans.
If the value of Transaction Date on which the interest is to be adjusted is greater than the current system date	Transaction Date cannot be greater than System Date
If the value of Transaction Date on which the interest is to be adjusted is less than the Last Accrual Date	Transaction Date cannot be less than Last Accrual Date

Example 1: Manual interest adjustment in an IPT-enabled loan

Let us say there is a loan with the following terms and conditions:

Create Summaries = true
Enable Adjustment Entry = true
Loan Amount = $10,000
Interest Rate = 15%
Time Counting Method = Month And Days
Is Interest Posting = true
Is Capitalization Enabled = true
Interest Posting Frequency = Billing Frequency
Payment Application Mode = Future Dues

Let us say that following is the state of the loan initially:

Current System Date	Loan Balance	Days	Rate	Interest	LPT Amount	Transactions	New Loan Balance
February 1	$10,000	0	15	0	$100	LPT	10,000 - 100 = $9,900.
March 1	$9,900	30	15	9,900 * 15/100 * 30/360 = $123.75.	None	IPT
March 20	9,900 + 123.75 = $10,023.75	19	15	10,023.75 * 15/100 * 19/360 = $79.35469	$100	LPT	10,023.75 - 100 = 9,923.75.

Now let us say, on March 20, the LPT of February 1 is reversed. Then the state of the loan would be as follows:

Date	Loan Balance	Days	Rate	Interest	Transactions	LPT Amount	New Loan Balance
February 1	$10,000	0	15	0	LPT Reversal	0	$10,000
March 1	$10,000	30	15	10,000 * 15/100 * 30/360 = $125	IPT	None
March 20	10,000 + 125 = $10,125	19	15	10,000 * 15/100 * 19/360 = $80.15625	LPT	$100	10,125 - 100 = $10,025.

Here,

Field	Value
LAD Date	March 20
Capitalization Date	March 1
System Date	March 20

Then the values of the following fields are:

Field	Value	Days
Adjusted Interest Capitalized	125 - 123.75 = 1.25	Till March 1
Adjusted Interest Non-Capitalized	80.15625 - 79.35469 = 0.8015625	March 1 to March 20

For the capitalized loan, there are the following two input fields that you must use:

Adjusted Interest Capitalized : To enter the capitalized interest portion till the capitalized date/IPT date.
Adjusted Interest Non-Capitalized: To enter the adjusted interest portion from capitalization date/IPT date to LAD.

Now let us say you enter the value for Capitalized Adjusted Interest as 5 and for Non-Capitalized Adjusted Interest as 2.5. Then the new values updated on the loan would be as follows:

Adjusted Interest Capitalized = 1.25 + 5 = 6.25. This would be adjusted in the next IPT. (If it was a backdated payment, this amount would be reduced from the next IPT, but, for reversal, it would be added.)

Adjusted Interest Non-Capitalized = 0.8016 + 2.5 = 3.3. This would be adjusted in the next IPT.

Example 2: Manual interest adjustment in a non-IPT enabled loan

Let us say there is a loan with the following terms and conditions:

Create Summaries = true
Enable Adjustment Entry = true
Loan Amount = $10,000
Interest Rate = 10%
Time Counting Method = Month And Days
Is Interest Posting = false
Is Capitalization Enabled = false
Interest Posting Frequency = Billing Frequency
Payment Application Mode = Future Dues
Contract Date = March 1, 2013

Note:

OLT = Other Loan Transactions
LTS = Loan Transaction Statement/Summaries

Scenarios

Let us consider the following state of the loan before a manual adjustment:

Date	Action	Bill	Different Parameters	Results
March 1, 2013			Principal Remaining = $10,000
April 1, 2013		Bill-1 of Due Amount = $ 1,046.40.	Principal Remaining = $10,000 Interest Accrued = 10,000 * (10/100) * (30/360) = $83.33 Today's Payoff = $10,083.33
April 10, 2013	Check LTS before manual interest adjustment		Principal Remaining = $10,000 Interest Accrued = 83.33 + (10,000 * (10/100) * (9/360)) = $108.33 Today's Payoff = $10,083.33
April 10, 2013	Do a Manual Interest Adjustment and set Adjusted Interest Non-Capitalized =10.0 Check OLT Check LTS after manual interest adjustment		Interest Remaining = $10	OLT of the type Adjusted Interest gets created.
April 20, 2013	Check Contract Details.		Interest Remaining = $10 Interest Accrued (from LAD whish is March 1) = 10,000 * (10/100) * (49/360) = $136.11. Today's Payoff = 10,000 + 10 + 136.11 = $10,146.11
April 20, 2013	LPT-1 (Payment) of $500 Check Contract Details after payment of $500 Check LTS after payment of $500		Loan Balance = 10,000 - (500 - 136.11 -10) = $9,646.11 Principal Remaining = $9,646.11 Interest Paid = $146.11 Interest Remaining = $0 Interest Accrued = $0 Total Amount Paid = $500.00

LTS before manual interest adjustment