Additional Interest on Delinquent Amount

Overview

With the Oxygen release, lenders can charge a default rate on the delinquent amount if a loan becomes delinquent. This default rate is implemented with the help of the additional interest component in the CL Loan system. Such an additional interest can be charged on the delinquent amounnt in a loan contract and in an investment order.

UI Enhancement

This section lists the user interface enhancements made in various releases.

Delinquency and Additional Interest

When a bill is unpaid on the bill due date, the loan becomes delinquent from the next day of the due date. However, if there are grace days defined, then the loan becomes delinquent after the grace days, and the unpaid bill amount that is not paid on time is called the delinquent amount. Lenders can charge an additional interest on this delinquent amount.

For example, if the bill due date is June 1, and the bill is unpaid, then the loan becomes delinquent from June 2. However, if there are grace days defined in the system as 2, after providing two grace days, the loan becomes delinquent from June 4. This means that until June 3, the value of additional interest defined to be charged on the delinquent amount is zero, as there is no delinquent amount. But, from June 4, the additional interest starts getting charged on the delinquent amount.

For more information on delinquency, see the Delinquency Management section.

Key Concepts

• An additional interest can be charged on a delinquent amount for the borrower and the investor, where the borrower has to pay this additional interest if the loan becomes delinquent, and the investor gains a defined share of the additional interest charged on the delinquent amount at a defined rate in the investment order.

• Additional interest is calculated from the day the loan becomes delinquent. 

• Adjustment Entry is not supported for loans with additional interest component.

• The scenario where a borrower's backdated transactions affect the investors is currently not in scope.

• Rescheduling without maintaining the delinquency follows the existing behavior in additional interest components where Interest Accrued is added to the Interest Remaining before the rescheduling date. It also updates the Interest Remaining for the investors so that the investors do not lose any interest accrued before the rescheduling without maintaining delinquency. This is because rescheduling without maintaining deliqnuency discards the past bills and schedules and new loan schedules are created from the rescheduling date.

Example: Backdated Payment and Reversal

Let us understand what happens when a backdated payment is made and the IPTs are reversed with the help of an example.

Contract Creation

Let us create a contract with the following terms and conditions:

Bills and Delinquent Amount

Let us say, on the Next Due Date April 1, a bill of $50 gets generated.

Now, let us look at the following table:

• As illustrated, on April 2, as no payment is made, the delinquent amount is $50.

  Note:

  Interest Accrued = Interest Accrued on Loan Amount at 15% for 1 day + Interest Accrued in Additional Interest Component on Delinquent Amount at 10%.

Backdated Payment

Let us say that the current system date is June 2. If we make a backdated payment of $20 on April 20, then: 

• Interest Accrual is calculated from the Oldest Unpaid Due Date April 1.

• IPTs of the loan and the additional interest for May 1 and June 1 are reversed.

Interest Posting Transaction

Once the IPT Jobs runs (as per the chain, IPT job runs before the delinquency job because IPT does not depend on delinquency), new Interest Posted for the additional interest is calculated in buckets of the unpaid bills that exist prior to the posting as illustrated in the following table: