Key Stages of the Loan Life Cycle
The following are some key stages in the life cycle of a loan contract. Each stage involves some key operations that can be performed for the loan.
Pre funding stage
The pre-funding stage includes the creation and approval of a loan application.
Creation: When a contract is created, it is by default in the Partial Application status. The system also generates a repayment schedule and an amortization schedule at this time.
Approval: A contract can be approved manually or by using a workflow. It means that a contract is ready to be funded or disbursed. The status of the application is Approved at this time.
Post funding stage
After approval of the application, a contract is created to be serviced using CL Loan application.
Disbursal: A contract is disbursed by creating a Loan Disbursal Transaction. Creating this transaction brings the loan into the Active – Good Standing status. The entire loan amount can be funded at once, or disbursal can happen in tranches depending on how the lending product is set up.
Billing: Billing is the process of generating a due or a bill for the next payment that is due according to the repayment schedule. Every Start of Day, the system looks for loans for which a due must be generated, and creates a record. A due can be generated on the day the payment is due, or can be configured to be generated a few days in advance using the Pre-Bill Days field on the loan.
Payments: Payments can be auto-generated or made manually against a contract. A payment affects many properties of the loan such as running balances, satisfaction of dues and the loan status. A payment is typically split into 3 components viz. principal, interest and fees.
Delinquency: A loan is considered delinquent when contractual dues are not paid by the due date. Contractual dues may include principal, interest, or both principal and interest. In other words, if there is a due on the loan that has not been fully paid, the loan status automatically changes to Active - Bad Standing. The only way to satisfy dues is by making payments. Payments can be auto-generated OR made manually. Optionally, late charges or NSF (non sufficient funds) charges can be configured to be automatically applied on the loan if the loan becomes delinquent.
Charges: Charges can be applied on the contract both manually and automatically. Certain types of charges such as a late charges and NSF charge can be configured to be applied automatically. A user can also manually apply other types of charges such as pre-payment penalties, Collection charges or any other charge.
Restructure: A contract can be restructured in many ways after disbursal. Some of these are:
Waive the interest
Reschedule the loan (this is the only restructure that affects the loan status by bringing the loan into Active - Good Standing)
Payment Plan
Defer payments
Change interest rate
Change payment amount
Once a contract is disbursed it becomes Active. It may toggle between Active - Good Standing and Active - Bad Standing as long as it is active. The only way a loan can come out of being active is if it is paid off early or on time (Closed - Obligations Met), written-off (Closed-Written Off) or cancelled (Cancelled) for any other reason.