Additional Interest in an Investment Order
Overview
With the Hydrogen release, a lender can define a rate at which an additional interest can be charged in an Investment Order (IO) to recover any losses due to any unused amount committed by the investor to invest.
This additional interest on an Investment Order is charged on the following types of principal amounts:
Key Concepts
This is the commitment amount of an investor that is not yet utilized for investing. It is calculated as follows:
Amount Not Funded = Total Unutilized Commitment Amount = Total Commitment Amount - Total Investment Amount = (Commitment % * Credit Limit) - (Investment Amount * Share %).
Example
Consider the following parameters:
| Total Commitment | Total Investment | ||
|---|---|---|---|
| Loan Credit Limit | $1,000,000 | Total Loan Disbursed (For loan disbursed in tranches) | $100,000 |
| Investor's Total Commitment % | 50% | Share | 50% |
| Total Commitment | $500,000 | Total Investment | $50,000 |
Amount Not Funded is calculated as follows:
| Amount Not Funded | |
|---|---|
| $500,000 - $50,000 = $450,000 |
This is the commitment amount that can be available in the future to invest. This value is stored in the Remaining Amount For Funding field, which is later used for reporting.
- For revolving and FIT loans, the value of the Remaining Amount For Funding field increases whenever the borrower makes a payment.
- On disbursement of the fund, the value of this field decreases, and further disbursement of the fund is decided, based on the value of this field.
For revolving and FIT loans, this is the unutilized commitment amount that can be available in the future to invest. It includes any principal amounts repaid by the borrower.
Available Amount for Funding = Commitment Amount + Principal Amount Repaid By the Borrower - Amount Invested.
However, if the loan is non-revolving, this amount is the same as the Commitment Amount not yet utilized by the investor.
Available Amount For Funding = Commitment Amount - Amount Invested.
The credit limit is the total commitment amount.
Credit Limit = Total Commitment Amount = Commitment % * Credit Limit of loan.
Total Investor's Interest = Additional Interest Rate * Commitment % * Credit Limit of loan * Time period/Number of days in year.
This is the delinquent amount of the loan.
For more information on additional interest on delinquent amount in an Investment Order, see Additional Interest on Delinquent Amount in an Investment Order section.
This is the type of interest bearing principal defined in the custom class in the Custom Settings. For example, if the custom class defines unpaid charges as the interest bearing principal, then the additional interest is calculated on the unpaid charges.
For more information on additional interest on a custom amount in an Investment Order, see Additional Interest on a Custom Amount section.
Capitalization
- The default value of the capitalization frequency of the additional interest in an Investment Order is the capitalization frequency of the Investment Order.
- An ILT is created for each capitalization in an additional interest of an Investment Order.
- The Outstanding Balance of the investor also includes the capitalized interest.
Additional Interest in Advance
When the additional interest is charged in advance, an Investor Loan Transaction (ILT) of the type, Interest Posting is created as soon as the IO is created. And, the next interest posting date is updated to the end date of the current interest posting cycle.
During the next interest posting, the system calculates the end date of the next interest posting cycle, and the interest is calculated from the next interest posting date to the end date of the next interest posting cycle.
The IO Interest Posting job picks up the IO, and creates the IPT for the advance additional interest. It also calculates the start and the end dates at the start of the interest posting cycle to get the additional interest of the next cycle.
The rate of additional interest in an IO can also be changed.
For more information on rate change, see Additional Interest.
APIs
The following API can also be used to create an investment order with an additional interest component:
Investment Order Creation API
Define an Additional Interest Component for an Investment Order
Prerequisites
The following are the prerequisites to define an additional interest for an investment order:
An Investment Order is created.
The Related List of Interest Component is added to the Investment Order layout.
Steps
Perform the following steps to define an additional interest component for an investment order:
Click the required Investor Loan ID.
Click the Related tab.
In the Interest Components section, click New.
Specify the following details, and then click Save:
Field Name Action and Information Interest Bearing Principal Select the principal amount on which the additional interest is to be calculated.
The following are the interest bearing principal amounts that can be selected:
- Amount Not Funded
- Available Amount For Funding
- Credit Limit
The Available Amount For Funding is selected by default.
Interest Component Name Specify an easily identifiable name for the interest component. Interest Rate Specify the rate of interest for the additional interest component. Add Interest To Bill This is currently not in the scope of Additional Interest Component for IO, and is not selected by default.
Interest Posting Frequency Select the frequency at which you want the additional interest to be posted if interest posting is enabled at the product level. Is Capitalization Enabled Select this checkbox to capitalize the additional interest component. Advance Interest Select this checkbox if the additional interest must be calculated for the next period in advance. Collect Advance Interest On Disbursal This field is not in the scope of Additional Interest Component for IO, and is not selected by default.