Protect enabled loans

CL Loan enables lenders to extend protection to borrowers in the form of a waiver on future repayments in unexpected events that may impact their ability to make repayment like job loss, bankruptcy, disability, or death. Borrowers can avail this facility at a small premium that is added to their loan amount. 

The Protect feature is different from the usual insurance, as it can be weaved into the loan repayment schedule, and does not need to be extended through a registered insurance agency.

In situations where a lender funds a loan through investors, investors get a higher yield on their funds in lieu of the risk of payment failure. For this, the investors pay the lender a share of the higher return, and a management fee for managing such loans on their behalf. The share to be paid to the investor is defined  through the Investor Share (%) field while creating protect based lending product. 

Types of protect

A borrower can opt for a Partial or Full Protect.

Partial: This option insures the borrower against payment default for a partial duration of the loan. For example, a borrower may not be able to make payments for the next six months due to disability and rehabilitation treatment. These six payments are waived off under Partial protect, while the loan remains in Active-Good Standing status. In the CL Loan systems, the LPTs for these payments are created with payment mode as Waived. In addition, a check box called Waived on the LPT indicates that the payment is waived under Protect. No returns are paid to the investor for these six months.

Full: A borrower may claim full protect in case of inability to pay at any time in the future. For example, a borrower may suffer permanent disability. In such case, all accrued and future payments are waived and the loan is written off. The investor does not receive any returns except for the management fee for future periods.

There may be a third scenario where a borrower has availed Protect, but not claimed it, and defaulted on the loan. Based on the write off tolerance and other settings on the loan contract, the loan may be written off and the management fee paid back to the investor on pro-rata basis.

Cancellation of protect enabled loans

CL Loan has a provision to define the cancellation period during which, if the loan is cancelled, the Protect fee is returned to the borrower, along with cancellation of the loan contract. When the loan is cancelled, an LPT is created for the amount that was originally disbursed to the borrower. A second LPT is created as part of the loan cancellation job for Origination Fee (Pre-paid fee that has been added to the loan amount) and the Protect Split. The remaining Protect Fee is updated in the Cancellation Tolerance Amount which then causes the loan to go to Canceled state. 

For example:

Amount Disbursed to borrower = 10000

Origination(Prepaid Fees) = 1000

Protect Fee Split = 300

Protect Fee (Unfunded) = 700

Total Loan Amount =  12,000 (Adding all the  above components)

Upon loan cancellation, LPT is created for 10,000

Once Loan Cancellation Job runs, LPT is created for 1300 (1000 + 300)

Cancelation tolerance amount gets updated to 700.

There is no refund to the borrower here.

Claim submission

The Protect feature becomes applicable from the date of loan disbursal. However, a borrower must place a Protect claim to be able to take advantage of this benefit. 

In case of a successful repayment waiver claim, the borrower does not need to pay the accrued and future Principal+Interest amounts and their principal balance reduces by the amount that is waived off. 

For the investor, all such waived off payments are indicated in the investor dashboard in the Investments tab. In addition, the principal shows in the write-off numbers.

Protect rebate

If a borrower makes all the payments as per schedule or completely pays off the loan without claiming a protect, that is, a payment waiver, then a rebate on the protect fee is offered to the borrower. In CL Loan 2.3007 and later, lenders have the discretion to offer a rebate even if a waiver was claimed by the borrower. The Ignore Waiver for Rebate field on the contract allows lenders to select the system behavior. If this checkbox is selected, the borrower gets rebated irrespective of waiver claims.