Revolving FIT Loans

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Revolving FIT Loans

A revolving loan is an arrangement which allows for the loan amount to be withdrawn, repaid, and redrawn again, until the arrangement expires.

In this arrangement, a borrower can draw a maximum amount up to the loan amount (the credit limit) at any point within the draw period. When an amount is repaid, it reduces the outstanding principal, and increases the available credit limit proportionally. Hence, the available balance increases. This enables the further disbursement on the loan to the extent of the available amount. 

The revolving loan feature is now available for funding in tranches (FIT) and is called the Revolving FIT loans.

Key Terms

  • Draw Period: The period over which the total amount is disbursed.

  • Draw Period End Date: This is the date till when the loan keeps revolving and does not close. It is set on the contract and decides whether we want to close the loan or not. Draw Period End Date should be at least one day less than the maturity date.

    Note:

    A loan cannot be closed on or before this date. 

    • If the current System Date is <= Draw Period End Date, then the status of the loan is in Active Good Standing.

    • If current System Date > Draw Period End Date, then the loan is closed and status changes to Closed-Obligations Met.

    • If you do not set Funding Stop Basis = Draw End Period, then it follows the existing functionality and closes the loan.

    • Repayment Start Basis starts from Draw Period End Date if Draw Period End Date is selected.

  • Funding Stop Basis: This is the date till when you can disburse the amount.

  • Current Credit Limit: The current amount available for the borrower to draw.

Creation of Revolving FIT Loans

In Revolving FIT Loans, the amount that can be funded to the borrower depends on the amount in the credit limit. When the payment is made, the credit limit increases.

Prerequisites

Following are the prerequisites to create Revolving FIT Loans:

  • The Funding In Tranches checkbox must be selected in the required lending product.

  • The Revolving checkbox must be selected in the required lending product.

    Note:

    If the Revolving checkbox is not selected, the payment amount is not added to the credit limit and is not available for future disbursements. The Current Credit Limit field is disabled.

    Note:

    To create a lending product, refer to Create a Lending Product.

  • Repayment Start Basis and Funding Stop Basis must be added to the Lending Product page layout. To know how to modify a page layout, refer to Modifying the page layout.

Closure of Revolving FIT Loans

A loan is closed when the remaining principal, interest, fees, and additional interest becomes zero and no further draw downs on the loan are made.

Revolving loans closure depends on the following:

  • Funding Stop Basis: If Funding Stop Basis = Draw Period End Date (set on the product), then till this Draw Period End Date, the loan keeps revolving and is not closed. The loan status does not change to Closed-Obligations Met, and the status of the loan is in Active Good Standing.
  • Draw Period.
  • Payoff:  When payment > payoff, the loan gets closed if Funding Stop Basis is not set to Draw Period End Date.

Example

Following is an example of how the current credit limit changes in different scenarios:

Loan Amount = $10,000

Credit Limit = $10,000

Disbursed Amount = $5,000

Current Credit Limit before disbursement of $5,000

Current Credit Limit after disbursement of $5,000

Current Credit Limit after repayment of the total amount (including Principal amount of $5000 + interest)