Lease rate cards

A rate card is a document that lending organizations maintain for pricing leases. By defining different combinations of the financed amount and the term of the contract, you can specify different rates at which your organization can offer a lease. A rate factor or interest amount is defined for each variation to determine the financed amount and the monthly rental payment for it.  

A rate card can be associated with a company or a lease product, but not both. You use rate cards for generating payment amounts in quick quotes and lease pricing for an approved application.

Sample Lease Rate Card

The following table shows a sample Lease rate card details:

In the above sample: 

• Payment Frequency: You can specify the lease installment Payment Frequency as Monthly, Quarterly, or Annually. 

• Min Financed Amount: This is the minimum amount that must be financed for the given lending product. 

• Max Financed Amount: This is the maximum amount that can be financed for the given lending product.

• Rate Factor: This is defined for each variation to determine the monthly rental payment on the financed amount. You can either define the rate factor or the interest rate to determine the payment amount. 

• Yield: This is the income return on investment. This refers to the Interest received from a security and is usually expressed annually as a percentage based on the cost of the investment or its current market value.

• Residual Type:

  • Fair Market Value - the estimated price that a given asset would fetch in the marketplace at the end of the contract is used to determine the residual value.

  • Term Residual - the value of the asset at the end of the lease term. You can specify the number of (residual) terms after the contract term within which the lessee pays up the residual value of the asset and becomes the owner of the asset.

• Residual % or Term:This is the value of an asset at the conclusion of a lease.

Setting Up a Lease Rate Card

Q2 Origination allows you to customize your interest rate offerings for leases based on the financed amount. You can use the rate card to create quick quotes for potential borrowers and to price lease applications.  You can define multiple rate cards based on the Residual Type. However, at a given time, only one rate card can be enabled.

A lease product can be set up to use either type of rate card - Loan or Lease. The Loan rate card can be associated with the lease product of type Loan. It allows you to customize the payment schedule by providing support for rounding of amounts, choosing a repayment method, and selecting options for scheduling payments that fall on holidays. For more information, see the Lease Pricing and the Creating a Consumer Lease Application sections in the Q2 Origination User Guide, and CL Product Setup,

The configuration of a rate card for a lease involves the following three steps:

1. Setting Up the Rate Card 

2. Setting Up Lease Rate Card Details

3. Setting Up Additional Determining Factors

Prerequisites

Before setting up a lease rate card, ensure the following prerequisites are met:

• A company is enabled, to set up the rate card for a company.

• A CL product is enabled, to set up the rate card for a product.

• The Lease product type is set up.

Steps

To set up a lease rate card, perform the following steps:

1. Log in to your Salesforce account.

2. Select  (App Launcher).

3. Search for Q2 Origination, and then select it.

4. Select Origination Configuration   .

5. Go to Pricing Setup, and then select Rate Card.

6. Select New Rate Card.

7. Specify Select a record type = Lease, and then select Next.

8. Specify the following rate card details, and then select Save:

   Filed Name	Action and Information
   Rate Card Name	Specify a Rate Card Name. For example, Truck Lease Rate Card.
   Product Type	The Product Type displays the product you selected on the previous page.
   Company
   Start Date	Specify the Start Date and End Date from and till which the rate card is effective. The current date is displayed as the default start date, however, you can edit it. You can define multiple rate cards with overlapping date ranges. However, only one rate card can be active at any time.
   End Date
   Transaction Date	Specify the transaction date.
   Description	This field provides a Description of the rate card that can help you identify its purpose easily. For example, Rate card for vehicle leases except for trucks.
   Enabled	Select this check box if you want to use the rate card, else leave this field blank. At least one rate card must be enabled in order to generate a quick quote or pricing for an application. Note: You cannot enable a disabled rate card later. The following message is displayed if you try to enable a disabled rate card: Error: Disabled rate card cannot be enabled.
   Filter By Loan Amount/Credit Limit	Select the Filters to apply to the rate card. You can filter the rate cards based on the parameters you select here while presenting pricing options to a customer. For example, if you select Filter By Loan Amount here, then, the rate card is used for generating pricing options only if the applicant's desired loan amount falls in the range of the minimum and maximum loan amount (specified in the rate card detail).
   Filter By Term
   Filter By Credit Rating
   Filter By Frequency

Setting Up Lease Rate Card Details

You can set up multiple rate card details for a rate card. The lease products of type Loan must use Loan rate cards to customize payment schedule generation for lease applications, such as provide rounding and holiday support, and allow selection of repayment procedure. The interest rate you provide in the 'Loan' pricing method in the rate card detail is considered as the yield for the lease application. 

Prerequisites

None.

Steps

To set up lease rate card details, perform the following steps: 

1. Ope the created Rate Card, go to the Rate Card Setup Details section, and then select New Rate Card Setup Detail.

2. Specify the following rate card details:

   Field Name	Action and Information
   Residual Type.	Select the Residual Type. The method by which the value of the leased asset is calculated for determining the pricing. Fair Market Value is the price that a given property or asset would fetch in the marketplace. Term Residual is the expected market value at the end of lease term, based on use, wear and tear, depreciation, technology innovation, and similar factors. This is expressed as a factor of the periodic payment amount.  For example, 1, 2 terms. This is a mandatory field.
   Residual (%)	Specify the Residual (%).  The projected residual value of equipment or asset at the end of the lease term. This is applicable if the residual type is Fair Market Value.
   Residual Term	Specify the Residual Term. The number of terms in which the lessee can pay up the residual amount and purchase the equipment or vehicle. This is applicable if the residual type is Term Residual.
   Minimum Financed Amount	Specify the Minimum Financed Amount that defines the starting value of the financed amount range for which the rate will apply. The minimum finance amount to which this rate card applies. You can define rate cards based on the financed amount range. This is a mandatory field.
   Maximum Financed Amount	Specify the Maximum Financed Amount that defines the ending value of the financed amount range for which the rate will apply.
   Term	The number of months for which the finance is extended. This is in months. For example, a 12 month lease, or a 24 months loan. This is a mandatory field.
   Payment Frequency	The repayment frequency. For example, Monthly or Quarterly. This is a mandatory field.
   Arrears	Select the Arrears check box to indicate if the payments are made at the end of the payment period rather than the start.  Indicates whether the lessee makes the repayment at the end of each payment period instead of the start of the payment period. If selected, this reduces the yield.
   Days Convention	Select the required Days Convention. The method that is selected for the calculation of interest. This is a mandatory field.
   Credit Grade	Select on the search icon to select the Credit Grade. The credit grade of the applicant may be used to decide the finance amount, payment term and interest rate. For example, you may extend a higher finance amount at a lower interest rate if a borrower has a credit grade of A versus if the borrower has a credit grade of D.
   Min Term	Select on the search icon to select the Credit Grade. The credit grade of the applicant may be used to decide the finance amount, payment term and interest rate. For example, you may extend a higher finance amount at a lower interest rate if a borrower has a credit grade of A versus if the borrower has a credit grade of D.
   Max Term
   Use Additional Determining Factors	Select the Use Additional Determining Factors check box if you want to define additional factors for evaluating the rates.
   Rate Factor	Specify the Rate Factor.  A rate factor is defined for each variation to determine the monthly rental payment on the financed amount. This is based on the minimum payment amount per period to earn a positive yield on the lease.
   Rate Factor Based on Amount	Specify the Rate Factor Based on Amount. This is the amount based on which the rate factor is derived.
   Residual Amount	The residual value of the equipment at the end of the lease term. Depending on the type of lease, a lessee can pay up the residual amount and purchase the equipment at the end of the lease.
   Payment Amount Per Period	The repayment amount for the lease.
   Total Payments	The sum total of the payments expected to be received based on the rate factor or interest rate.
   Yield %	The expected return for the lessor on the financed amount, based on the rate factor or interest rate.
   Pricing Method	The method used to price a lease. This can be Rate Factor or Interest Rate.
   Rate Factor	The rate factor to be applied to the financed amount to generate the payment amounts.
   Interest Rate	The interest rate used to determine the payment amount in case you are not using the rate factor.

3. Select Calculate Payments.

   The Residual Amount, Yield%, Total Payments, and Payment Amount Per Period amounts are generated.

4. Select Save.

Example

The example below explains the calculation of Financials field values for a Lease Rate Card 

Let us define a rate card for the Lease product with a maximum financed amount of 1 Lakh. Refer to the image below for the values set up in the rate card:

Suppose the current value of the new equipment is 100,000. After the lease term of 12 months, the value of the equipment may reduce to approx 10,000.

This means the equipment depreciates by 90,000 over the lease term. Based on your projection of the residual amount and the payments made by the lessee, the yield is calculated. 

Let us define a rate factor of 8% on the financed amount of 1 Lakh and calculate the payments. You get a yield of 22.29% on your investment, through the total payments of 96K by the lessee and a residual value of 16K on the equipment.

Alternatively, you can decide the yield you want and derive the fate factor to achieve that yield %. However, you cannot define a rate factor where the residual amount becomes equal to or more than the Rate Factor Based on Amount. For example, if you increase the rate factor to 0.50, the residual amount becomes 1 Lakh and the yield is 1309%. You can calculate the payments, but the system does not allow you to save this rate card. You get the following error:

Manage Rate Card Details

Setting Up Additional Determining Factors

You can customize a rate card by defining additional parameters or factors to create more relevant offerings. These are being used in the selection of rate cards for a given application or a quick quote in order to customize the lending options for the applicant. You can define any number of such factors for a given rate card. These are defined at the rate card setup level. 

For example, you can define an additional factor that if the borrower has insurance you can offer a lower rate of interest. Or, you may add the number of years of employment remaining as a factor in the evaluation of an application. These parameters are specific to a rate card. 

If you make a factor available or unavailable for use, this applies to all rate card detail options that use them. Once you save the additional determining factor, you can provide the benchmark values for the fields you have included in the factor definition. An application's inputs are measured against these benchmark values.  

Prerequisites

Before setting up additional determining factors, ensure that the following  prerequisite is met:

• The rate card is set up.

Steps

To set up additional determining factors, perform the following steps:

1. In the Rate Card Setup page, go to the Additional Determining Factors section, and then select New.

2. Specify the following values, and then select Save:

   Field Name	Action and Information
   Determining Factor Name	Name of the additional determining factor.
   Evaluation Operator	The operator applied on the values in the factor, for example, >, <, >=.
   Required for Evaluation	Indicates whether the factor is used in the rate card detail.
   Applicable for Application	Indicates whether this factor will be used while price applications. If this determining factor is used while pricing an application. The Application Object - Field Mapping section is displayed. Field Name Action and Information Select Object Select the Object. This is an Action by default.  Select Field Select the Field from the application which this factor evaluates using the operator you defined above. For example, the Credit Risk additional determining factor may evaluate the value of the Credit Score field of the application. The API name of the field is displayed alongside.
   Applicable for Quick Quote	Indicates whether this factor will be used while price applications.if this determining factor is used while pricing an application. The Quick Quote Object - Field Mapping section is displayed. Field Name Action and Information Select Object Select the Object. This is an Application by default. However, you can change it to another object. For example, if you have created the lease application and have an application ID, and will subsequently create the quick quote, you can select Application as the object.  Select Field Select the Field of the object to which this factor is linked. For example, if you create an additional determining factor called Tax, you can link it to the Tax Amount field.
   Apply to all Rate Card Details	When this field has selected the value of determining factor will be applied to all rate card details.

3. Configure the determining factors as follows:

   1. Select Edit next to the Rate Card Detail Setup where you want to use these additional determining factors. 

   2. Select the Use Additional Determining Factors check box to use the additional determining factor for evaluation criteria.

      The factors are now available for use. 

   3. Select Save.