The Financial Calculator - FinCalc

Overview

Financial Calculator, or FinCalc, as it is more familiarly called, is an internal calculator of the Q2 Loan Servicing platform that is used for calculations to derive the amortization schedules for a loan.

When you create a loan contract, CL Loan uses FinCalc to derive the payment schedule for the loan. FinCalc calculates the payment amounts for each payment period based on determining parameters like loan term, rate of interest, principal amount, and payment frequency.

However, in scenarios like rescheduling, refinancing, change of payment term or amount, change of due day, the payment schedule needs to be recalculated. In such scenarios, FinCalc offers the ability to calculate or generate the following: 

• Payment Schedule - If the loan amount, term and interest rate is available
• Loan Term - If loan amount, payment amount, and interest rate is known.

For each of the above calculations, multiple combinations of inputs may be provided. This capability of FinCalc to use the parameters and calculate what is required, can be specially useful if any of these parameter values do not transfer over during migration of contracts across loan systems. 

Financial Calculator 3.1 is available in CL Loan 2.2003 and later versions. This is the default version for CL Loan 2.3007 and later releases. It is preceded by FinCalc 3.0, 3, and 2.0. FinCalc 3.1 encapsulates all the features of the previous versions in addition to the new capabilities explained below.  

If you are upgrading from a previous version to 2.3007 or higher, you must update the Financial Calculator version to be able to use the following features. For steps to do this, refer to section Defining Org Parameters.

If you are installing CL Loan for the first time, the Financial Calculator version is set as part of the post install script. For more information, refer to section Upgrade Tasks for CL Loan 2.3007. 

Key features of Financial Calculator 3.1

The following are some of the key features of Financial Calculator 3.1:

• Rounding applied to interest and principal in the final payment schedule only - FinCalc 2 and 3 apply the rounding even during FinCalc's guess process for internally generating the payment schedules. This has the potential to impact the accuracy of the amounts, and hence the principal balance at the end of the payment schedule, thereby impacting the number of guesses required to reach the final payment schedule. Any impact of changing the payment amount by a small value is lost in this rounding, and two different payment amounts could  still result in the same principal balance at the end of the schedule. FinCalc 3.1 removes the rounding from the guess calculations, and calculations can be precise up to 6 decimal digits. Since the calculator uses the previous guess to decide the next guess amount, the final payment schedule is reached in far lesser number of calculations due to more accurate guesses.  Any adjustment of interest rounding is done in the last schedule by the feature mentioned next. Principal is adjusted in the last schedule to ensure that the principal collected is equal to the principal disbursed
• Adjust Rounding in Last Payment Amount - If this parameter is selected, any excess or deficit amount collected due to rounding in the payment schedule, is adjusted in the last payment. 

• Final Payment Different - The balances are squared off in the last payment. 

For example, assume payment amount = 1000. Interest = 99.20 and Principal = 900.80.

The system rounds off as: Interest = 99 and Principal = 901, to keep principal as fully met. As a result, the interest gets impacted, and lesser interest is recovered. The total interest differential generated in this way is settled through the final payment. 

• FinCalc 3.1 fixes issues existing in previous versions. As a result, lenders upgrading to FinCalc3.1 would observe higher performance.

Key features of Financial Calculator 3

The following are the features offered in Financial Calculator 3:

• A 70% performance improvement introduced by using formula based calculations for generating payment schedules, and including these calculations as reusable methods that can be called into code.
• Leap year support - FinCalc 3.0 supports the Actual/366 time counting method in addition to the existing methods like Days and Months.
• Deterministic interest only period behavior - Users have four options to choose from for calculating interest only period behavior, in the Defining Org Parameters.  
• Fixed payment option in interest only period - Interest Only Payment Amount option can be set at product level, and the amount value can be specified at contract level.
• Payment frequency multiplier support - Users can select a payment frequency and a multiplier value, allowing setting up a custom payment frequency for a borrower. For example, frequency of Daily and multiplier of 16 allows a 16 day payment cycle.
• Staggered payment plan support -  Users can intersperse Interest Only payments with Principal+Interest payments. For example, a lender can collect monthly interest on an otherwise quarterly payment frequency based loan contract.
• Periodic Fee support - A fee may be recovered periodically, making those payments bigger than the regular payments as per schedule. For example, a quarterly periodic fee may be applicable which makes one payment in every quarter bigger than the others.
• Fixed interest payment plan support 
• Interest Only with Balloon Payment option support - Lenders can define both, a balloon payment as requested by a borrower to be paid at the end of the contract, and an interest only period for the remaining amount, for creating the payment schedule. Any shortfall or excess in interest amount collected during the Interest Only period or life of the contract is settled in the balloon payment amount.
• APR calculation is accurately implemented.
• Equated payment method is provided.

Financial Calculator 4

With the August 2023 release, the Financial Calculator version 4 has been introduced in the Q2 Loan Servicing product. For more information, see Financial Calculator Version 4.0 - FinCalc 4.0.