Fee Accrual for Prepaid Fees
The frequency of the accrual can be either Daily or Month End.
Supported fee accrual methods
Straight line method
The Straight line method calculation is a simple division of the total prepaid fee to be accrued by the total number of terms to be spread over.
Example:
| Fee to be Accrued | Accrual Terms | Fee Accrued per Term |
|---|---|---|
| 100 | 20 | 100/20=5 |
Income Basis method (IRR method)
In IRR method the fee accrued over the terms is not equal and depends on the interest for the period, and the interest accrued per term.
Example:
| Terms | Total Fee Accrued | Interest for the Period | Interest Accrued | Fee Accrued per Term |
|---|---|---|---|---|
| Term 1 | 100 | 150 | 80 | (80/150)*100 |
| Term 2 | 70 | (70/150)*100 |
Effective Interest Rate method
In the Effective Interest Rate method the fee is accrued when Fee Accrual Dynamic Job is run at the end of each month, the fee accrual is computed based on the balance of each schedule falling within that month. Where the Balance is the Repayment Schedule excluding the Fee Remaining.
This method distributes prepaid fees proportionately across the duration of the loan for accounting purposes. Effective Interest Rate method is used for accounting purposes only.
The accrual fee is calculated only over the repayment schedule.
The following formula is used to calculate the fee accrued using the Effective Interest Rate method:
Fee Accrued = ( Balance from Repayment Schedule - Fee Remaining) * Annualized Effective Rate of Interest * Number of Days / (100 * Time Counting Method)
Where:
Fee Remaining = Amount (Total pre-paid fees) - Fee Accrued
Annualized Effective Rate of Interest: The Interest rate provided by the lender
Number of Days: Calculated as the days between the Last Accrual Date and the Month End Date
Balance: The Balance on the Repayment Schedule excluding the Fees
Fee Remaining : Amount (Total pre-paid fees) excluding the Fee Accrued
Example:
| Terms | Total Prepaid Fee | Balance | Annualized Effective Rate of Interest | Days Counting Method | Fee Accrued |
|---|---|---|---|---|---|
| Term 1 | 100 | 1000 | 86.20% | 365 | 65.88986301 |
| Term 2 | 500 | 34.11 |
Calculations
| Term | Calculations |
|---|---|
| Fee Accrued (Term 1) | (1000 - 100 )*.862*31/365 = $65.88986301 |
| Fee Accrued (Term 2) | (500 - 100 )*.862*31/365 = $34.11 |
Configuring fee accrual
To accrue a fee, you must associate it with a product and specify the method to accrue it.
These settings can be overridden at the contract level.
At the contract level you can specify additional parameters, such as Accrual Terms- the number of terms for which the fee should be accrued. This option works only with Straight Line method of accrual.
User interface reference
Steps to configure a fee accrual
- Log in to your Salesforce account.
- Select Lending Products.
- Go to View/Edit Lending Products.
- In the Product Pre-PaidFees section, Select New Product Pre-Paid fee.
- On the New Product Pre-Paid fee page, fill in the details as described in the table below, and then click Save.
| Field | Description |
|---|---|
| Fee | The Prepaid fee that you want to associate with this lending product. |
| Lending Product | The lending product with which you want to associate this fee. |
| Add Fee to Loan Amount | With this check box selected, this fee is included in the loan amount. |
| Enabled | With this check box selected, this fee is active is copied to the new contracts associated with this lending product. |
| Frequency | The accrual frequency. It can be daily or monthly. If you are configuring fee accrual for Effective Interest Rate method then the accrual freq should be selected as Month-end. |
| Accrual Required | With this check box selected, this fee is accrued. |
| Accrual Method | Select the required accrual method. Following are the options for Accrual method:
|
For Effective Interest Rate method add the required value to the Annualized Effective Interest Rate field in the loan contract.
Viewing the fee accrual stream
Use the View Stream button to view the detailed schedule of the fee accrued for a contract.
Example:
An Example of Fee Accrual Stream: