Automatic Interest Adjustment in non-IPT-enabled loans

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Automatic Interest Adjustment in non-IPT-enabled loans

How is the interest adjusted after a backdated transaction in the case of non-IPT-enabled simple loans?

  • In the case of a non IPT-enabled loan, after a backdated transaction, the difference in the interests is adjusted in the Interest Remaining field (IR).

  • Once the backdated payment is reversed or made, the system adjusts the interest automatically and adjusts it to the Interest Remaining.

  • In the case of a backdated payment reversal, the adjusted interest is positive and in the case of a backdated payment, it is negative. And the adjusted interest is added to the Interest Remaining (IR).
    For example, if Adjusted Interest = $20.66 and IR is $100, then the new IR amount would be $120.66.

  • In the case of a backdated payment for a non IPT-enabled loan, the value of adjusted interest is negative and the same is adjusted in the Interest Remaining.
    For example, if, due to the back dated payment, the value of adjusted interest is -20 and the Interest Remaining is 10, then the new value of Interest Remaining would be -10. After that, if any LPT is made and the total interest calculated is 8, then there is no portion of LPT that would go toward the interest and the Interest Remaining would be updated to -2.

  • If a loan is closed, and the Interest Remaining field holds a negative value after satisfying all the components, then the same is adjusted in the excess amount.

Example: Automatic interest adjustment for a non IPT-enabled loan in the case of a backdated payment that is created beyond two LPTs

Let us say there is a loan with the following terms and conditions:

  • Create Summaries = true

  • Enable Adjustment Entry = true

  • Loan Amount = $10,000

  • Interest Rate = 10%

  • Term = 10

  • Time Counting Method = Month And Days

  • Is Interest Posting = false

  • Is Capitalization Enabled = false

  • Payment Application Mode = Future Dues

  • Payment Frequency = Monthly

  • Contract Date = March 1, 2013

Note:

  • LAD = Last Accrual Date

  • IA = Interest Accrued

  • PR = Principal Remaining

  • LPT = Loan Payment Transaction (Payment)

  • IR = Interest Remaining

Before a backdated payment

Let us consider the following state of the loan before a backdated payment is made.

Date Action Results
March 1, 2013 Loan is created, approved, and disbursed.

  • PR = $10,000

  • LAD = March 1, 2013
April 1, 2013  

  • IA = 10,000 * (10/100) * (30/360) = $83.33

  • Bill-1 gets generated of Due Amount = $1,046.4
April 15, 2013 None

  • IA = (10,000 * (10/100) * (14/360)) + 83.33 = $38.9 + $83.33 = $122.22
April 15, 2013 LPT-1 of $1,000

  • PR = 10,000 - (Principal portion paid) = 10,000 - (1,000 - 122.22) = $9,122.22

  • LAD = April 15, 2013
May 1, 2013 None

  • IA = PR * (10/100) * (16/360) = $40.54

  • Bill-2 gets generated of Due Amount = $1,046.4
May 10, 2013 None

  • IA = (PR * (10/100) * (9/360)) + $40.54 = $22.81 + $40.54 = $63.35
May 10, 2013 LPT-2 of $500

  • PR = $9,122.22 - (500 - 63.35) = $8,685.57

  • LAD = May 10, 2013
May 25, 2013 None

  • IA = PR * (10/100) * (15/360) = $36.19

LTS before a backdated payment

Note:

To view a larger version of the preceding image, select this link: Image.

After a backdated payment

Now let us see the state of the loan after a backdated payment of $500 is made on May 25 for March 10:

Date Action Results
March 1, 2013 None

  • PR = $10,000

  • LAD = March 1, 2013
March 10, 2013 None

  • IA = 10,000 * (10/100) * (9/360) = $25
March 10, 2013 LPT-3 of $500

  • PR = 10,000 - (Principal portion paid) = 10,000 - (500 - Interest Paid) = 10,000 - (500 - 0) = $9,500

  • IR = $25

  • LAD = March 10, 2013
April 1, 2013  

  • IA = 9,500 * (10/100) * (21/360) = $55.42

  • Bill-1 gets generated of Due Amount = $1,046.4
April 15, 2013 None

  • IA = (9,500 * (10/100) * (14/360)) + 55.42 = $36.94 + $55.42 = $92.36
April 15, 2013 LPT-1 of $1,000

  • PR = 9,500 - (Principal portion paid) = 9,500 - (1,000 - Interest already paid before backdated payment on April 15) = 9,500 - (1,000 - 122.22) = 8,622.22

  • IR = previous IR + IA - Interest Paid before backdated payment on April 15 = 25 + 92.36 - 122.22 = -4.86.

  • LAD = April 15, 2013
May 1, 2013 None

  • IA = PR * (10/100) * (16/360) = $38.32

  • Bill-2 gets generated of Due Amount = $1,046.4
May 10, 2013 None

  • IA = (PR * (10/100) * (9/360)) + 38.32 = $21.56 + $38.32 = $59.88
May 10, 2013 LPT-2 of $500

  • PR = $8,622.22 - (500 - Interest paid before backdated payment on May 10) = $8,622.22 - (500 - 63.35) = $8,185.57

  • IR = previous IR + IA - Interest Paid before backdated payment on May 10 = -4.86 + 59.88 - 63.35 = -8.33

  • LAD = May 10, 2013
May 25, 2013 None

  • IA = PR * (10/100) * (15/360) = $34.11
Note:

The green colored rows in the preceding table indicate the internal calculations when a backdated payment for March 10 is made.

LTS after backdated payment

Note:

To view a larger version of the preceding image, select this link: Image.

OLT after backdated payment

An OLT of the type, Adjusted Interest, and of amount, -$8.33, gets created in the system:

Note:

To view a larger version of the preceding image, select this link: Image.

Note:

To view a larger version of the preceding image, select this link: Image.

Adjusted Interest Calculation

Adjusted Interest Non-Capitalized

= (Total Interest Accrued after backdated payment - Total Interest Accrued before backdated payment) - (Last Interest Accrued after backdated payment - Last Interest Accrued before backdated payment)

= {(25 + 55.42 + 36.94 + 38.32 + 21.56 + 34.11) - (83.33 + 38.89 + 40.54 + 22.81 + 36.19)} - (34.11 - 36.19)

= (211.34 - 221.76) - (-2.08)

= -10.42 - (-2.08)

= -8.33.

The total interest to be adjusted = -8.33. This is adjusted to Interest Remaining. Thus, Interest Remaining = -8.33.

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